January, 2012
Lenders are pumping up mortgage charges, such as arrangement fees, to cover the hit from lower and less profitable interest rates, new research suggests.
Figures compiled by financial information provider Moneyfacts reveal that charges attached to home loans rose by almost 69 per cent – or £609 – in 2011.
This means the average mortgage fee is £1,498, up from £889 a year ago.
Last year, mortgage rates fell with the average five-year fixed loan dropping from 5.24 per cent to 4.57 per cent – and lenders have hiked mortgage fees to compensate.
Mortgage arrangement fee costs – sometimes labelled by lenders as a booking fee, completion fee or administration fee – have shot up in recent years.
Research by consumer group Which? found that the average cost in November 2005 for a mortgage fee was just £411, more than £1,000 less than the figure today.
In the past, lenders would charge a fee to cover the costs they incurred administering the mortgage. But today, many lenders rely on fees to bring in extra revenue and so have increased the size of many of their fees.
Borrowers with big deposits have seen some of the most drastic falls in mortgage rates in the last year, but have seen some of the largest mortgage fee increases.
According to the Moneyfacts, which compiled the figures for The Sunday Times, the average charge for those with a 40 per cent deposit has risen by 42 per cent, meaning that a fee which would have been £1,098 a year ago will now set you back £1,562.
Those with a 25 per cent deposit have seen fees soar 65 per cent, from £969 to £1,599.
THE COST OF ARRANGEMENT FEES:
Date Average fee
01/08/2011 £1,201
01/09/2011 £1,023
01/10/2011 £1,154
01/11/2011 £1,482
01/12/2011 £1,471
01/01/2012 £1,498
Source: Moneyfacts
Sylvia Waycot of Moneyfacts, told the Sunday Times: ‘Increasing fees is a way for banks and building societies to boost revenues, particularly if they are cutting rates on new deals.
‘Researching the best mortgage should not just include the headline rate, but also set-up charges as these can significantly increase the overall cost of your loan.’
Historic interest rate lows have enabled lenders to offer some of the best deals ever, research has shown. Fixed mortgage rates, for example, were slashed this summer to record low levels.
And according to Barclays Capital, mortgage payments in England and Wales averaged £494 a month or 15.4 per cent of home owners’ take-home pay last year, making deals at their most affordable for a decade.
The best deals are historically cheap. Five-year fixes are available below 3.5 per cent and lifetime trackers at below 3 per cent.
Mortgage rates have been driven down by expectations for a base rate rise being pushed back and swap rates which influence fixed rate mortgages falling.
Lenders have also been keen to hit lending targets (and make some money) and the Council of Mortgage Lenders has reported that while funding remains tight there may be more money to go round this year than expected.
However, sneaky lenders continue to increase administration fees, so when you compare deals, it is important to watch out for these hidden charges behind the cheap headline rates.
Category : General Property News
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Category : General Property News
