Average mortgage fee has increased by 70% in 4 years
06:30 EST, 10 September 2012
Despite headline mortgage rates tumbling in recent years, research confirms that lenders have kept up their revenues by hiking arrangement fees at a steep rate.
According to comparison website Moneyfacts.co.uk, the average mortgage fee has risen by an eye-watering 70 per cent – or just over £1,000 – since March 2008.
Even in the last two years they have increased by 48 per cent – from £924 in September 2010, to £1,514 today.
Fee rip-off: Despite headline mortgage rates falling, fees have increased dramatically at the same time
Average mortgage rates have fallen by up to two per cent over the four year period: in March 2008 the average two-year fixed rate was 6.34 per cent, significantly higher than today’s 4.57 per cent.
The drop in headline mortgage rates comes as the base rate dived from 5.25 per cent in March 2008, to 0.5 per cent in March 2009 – a historic low and where it has remained unchanged since.
So why have arrangement fees increased so drastically? Sylvia Waycot, finance expert at Moneyfacts.co.uk, said: ‘There is no logical reason why fees should have increased so much. In the space of just August and September alone, they have increased by an average of £42.
‘Mortgage administration costs can’t have jumped 70 per cent. Credit searches are no more complex than in previous years, so why are fees so high?’
She believes the rise could be because lenders are keen to gain money at the outset of a mortgage deal rather than hoping the borrower will stay the term of the deal. Meanwhile, low headline rates attract borrowers, who are then sucked in to paying the high upfront fees.
AVERAGE MORTGAGE FEE
Sept 2010 – £924
Sept 2011 – £1,023 (Up 10.7%)
Sept 2012 – £1,514 (Up 48%)
She added: ‘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.
‘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.’
The total number of mortgage products available has fallen from 22,457 before the credit crunch to just 2,502 today, according to comparison website termfixed.com, due to lenders tightening their criteria and reducing the number if loans available to borrowers with small deposits.
The demise of the 100 per cent loan to value (LTV) mortgages and the number of first-time buyer products reducing from 13,644 to 1,315 and squeezed finances are making it hard to save a large deposit. Currently, first-time buyers numbers are about 40 per cent lower than they were five years ago.
Existing borrowers, however, have been reaping the rewards of the low base rate environment of the last three and a half years, with many still on variable rate loans they took out prior to the onset of the credit crunch. This means some borrowers are lucky enough to be paying rates only marginally higher then base rate and are also able to overpay on their mortgage.
There are also historical low fixed and variable rate mortgages available to those looking for a new mortgage. The leading deals are only available to those with a sizeable deposit however – in some cases as much as 40 per cent.
The average best buy three-year fixed mortgage rate has fallen from 6.25 per cent in 2007 to 3.68 per cent now according to websites, while two-year fixed mortgages have dropped from 5.67 per cent to 3.01 per cent.
Based on a £150,000 mortgage, this represents a saving in monthly payments of £224.01 and £224.32 respectively.