If you are thinking of taking out a new mortgage, you will probably have compared the fees that lenders charge for their deals. Most fixed, tracker and discounted mortgage rates have an administration or booking fee which can range from a few hundred pounds to several thousand pounds.
Now, new research has found that the average fee charged on a new mortgage has increased by a massive 70% in the last four years. So, if you are looking for your next mortgage, it is important that you look carefully at the fees that a lender will charge you.
Data from financial analysts Moneyfacts has found that the average mortgage fee is now £1,514. This represents a 70% increase from 2008, when the average fee was just £889. With most people choosing to fix their mortgage payments, Moneyfacts looked at the average fees and loan-to-values (LTVs) on fixed-rate deals. The average fee on two-year fixed rate is £1,565 and, at 75% LTV, the average rate is 4.31%. The average fee on a five-year fixed deal is slightly less at £1,014 and the average 75% LTV will cost 4.19%.
FT Advisor reports that "the highest fee, an Accord product offered through Legal & General Mortgage Club and others, at £3,990, is for a 75% LTV fixed for five years at 3.79% so in this case, the higher fee earns you a lower overall rate". However, at the other end of the scale, the Post Office offers a two-year fixed-rate deal at 3.65%. This is available to 75% LTV and has no fee.
Sylvia Waycot, finance expert at Moneyfacts.co.uk, believes there is "no logical reason" why fees have increased so much. She said: "Mortgage administration costs can't have jumped 70%. Credit searches are no more complex than in previous years, so why are fees so high? It could be that lenders are keen to push fees because they are an upfront cost, which means they get the money at the start regardless of fulfilling the full length of a fixed term. And should you not fulfil the full length of the fixed term, well that can open the door to a whole host of other upfront charges."
Keith Osborne, editor of whathouse.co.uk, says: "With mortgage fees having risen so sharply since the credit crunch, it has never been more important to shop around for the best deal. Always compare both the interest rate and the fee when choosing a mortgage product. It can sometimes pay to pay a higher fee for a lower rate deal, depending on the term and the size of your mortgage."
Ms Waycot from Moneyfacts agrees. She adds: "Doing your homework before choosing your mortgage is key. Mortgages have always been complicated, but these days that complication has sadly been taken to a whole new level."