Mortgage lenders have been increasing the fees charged on their most competitive mortgage deals, as many home owners look to switch to a fixed-rate loan in a bid to protect themselves against future interest rate rises.
According to inflation data just published by the Office for National Statistics, the cost of "miscellaneous goods and services" was being driven upwards by mortgage arrangement fees and foreign exchange charges.
Although interest rates remain at a record low, consumers are having to pay more in many cases to secure the cheapest home loan deals.
David Hollingworth, of mortgage brokers London & Country, said he had seen some lenders start to increase fees in recent months. Typically an arrangement fee will be in the region of £1,000, he said. "But we have started to see the odd deal come in with a £1,500 or £2,000 charge. These deals will typically charge lower interest rates, though," Mr Hollingworth added.
Leeds Building Society had recently launched a two-year discount deal with an upfront fee of £2,999, he said. This loan charges a current interest rate of 2.54pc, although the rate will rise as and when the Bank of England pushes up interest rates.
Skipton Building Society has also increased its fees. Rather than charge one arrangement fee, it now levies an upfront "application fee" of £195, followed by a further "completion fee" of £995 once the mortgage is secured. This, Mr Hollingworth said, has pushed up the total fees paid by customers.
Kevin Mountford of moneysupermarket.com said: "For those with larger mortgages it can make sense to pay a larger upfront fee if this secures a lower mortgage rate."
However, he said there was a growing trend for mortgage providers to charge a percentage fee, where the arrangement fee was 1.5pc or even in some cases 2.5pc of the amount being borrowed. Clearly this can be costly for those with larger mortgages.
He added: "In the past many lenders allowed people to add this fee to their mortgage. Now some require customers to pay it upfront. Clearly, given the economic situation, some people will struggle to find this money, so may end up going for a mortgage with a lower fee but higher interest rates as a result – which in some cases will cost them more over the long term."
However, he said there was a growing trend for mortgage providers to charge a percentage fee, where the arrangement fee was 1.5pc or even in some cases 2.5pc of the amount being borrowed. Clearly this can be costly for those with larger mortgages.
He added: "In the past many lenders allowed people to add this fee to their mortgage. Now some require customers to pay it upfront. Clearly, given the economic situation, some people will struggle to find this money, so may end up going for a mortgage with a lower fee but higher interest rates as a result – which in some cases will cost them more over the long term."
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