Average mortgage fees doubled in five years
Average mortgage arrangement fees have nearly doubled in the last five years to more than £1,500, research has revealed.
Typical fees have risen from £878 in 2009 to £1,588 this year, according to a new report from consumer rights organisation Which?.
The group also revealed that mortgage lenders enforce more than 40 fees and charges across the market. These include arrangement fees, set-up fees, arrears fees and final repayment fees.
The research also exposed significant variation between lenders in the cost of the same fees. This, it suggests, means fees don't always reflect the true cost the lender incurs.
For example, Norwich & Peterborough Building Society has a two-year fixed-rate deal at 2.29% that comes with an application fee of £1,295. Cambridge Building Society's version (which has the same rate) charges £699 – that's a difference of 85%.
Which? also found that some lenders are using different names for the same or similar fees. For instance, a booking fee can also be called a reservation or application fee. This can make things confusing for customers.
In addition, Which? said a lack of clarity about fees generally makes it difficult for borrowers to tell if the fees are avoidable and leads to them paying over the odds.
"This vast array of confusing fees and charges, which aren't always reflected in the standard APR (Annual Percentage Rate), means the total cost is not clear to borrowers, leaving them unable to easily find the best deal," said a Which? spokesperson.
"We found just 3% of people could correctly rank the cost of five two-year fixed-rate mortgage deals when displayed using typical information, including APR. This rose to 36% when presenting the total cost of the mortgages over 24 months," the spokesperson added.
The research showed that consumers borrowing £100,000 over two years could save up to £1,503 "if they took into account the set up fees rather than choosing the product with the lowest interest rate".
The consumer group's executive director, Richard Lloyd, added: "The Chancellor must act now to stop sneaky fees and charges and end mortgage confusion for consumers. The government and the regulator should also explore better ways of presenting the total cost of mortgages."
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.