Lenders have been cutting mortgage rates to appear competitive and attract homeowners who are remortgaging following the Bank of England base rate rise in August.
But despite the low rates, homeowners could still end up paying more because lenders have been pushing up fees to their highest level in five years, new research suggests.
With remortgage activity currently high following the base rate rise, providers are trying to look as attractive as possible by reducing or freezing rates. However, borrowers are being stung with higher fees as lenders look to claw back money to compensate.
According to data from money-saving website Moneyfacts, average mortgage fees have gone up by £15 since August to stand at £1,005 this month – the highest average recorded in more than five years.
Charlotte Nelson, finance expert at Moneyfacts, says: “It is disappointing news that the average mortgage fee is not only on the increase, but it is the highest it has been in over five years.
“Providers are currently fighting among themselves to be seen as the lender offering the lowest rate on the market, all in a bid to attract borrowers who are considering remortgaging after the recent rate rise by the Bank of England."
She adds: “However, the increase in the average fee is in direct response to these rate cuts, as lenders try and compensate these deals.”
While the Bank of England has increased the base rate twice since November 2017 – from 0.25% to the current rate of 0.75% - mortgage rates are still far lower than providers’ costs.
For example, the average two-year fixed rate is 0.16% higher than it was in November 2017, rising from from 2.33% to 2.49%.
Ms Nelson says that by increasing fees, providers are making a small attempt to recoup some of this extra cost.
She says: “While these low-rate deals look great on paper, the hefty fee that goes alongside them can mean that what appears to be a cheap offer, may in reality be a much costlier one.
“It is important to note that fees can vary in impact depending on how much you borrow, with the low rate/high fee scenario ideal for those looking to purchase properties at the higher end of the market, for instance. However, for the average borrower who remortgages every two years, the fees can soon add up and this additional cash could be better spent overpaying the mortgage.”
An example of how low rate mortgage products with higher fees can be more expensive can be seen with Yorkshire Building Society.
It has two fixed rate products at 60% loan-to-value, one with a fee of £995 and a rate of 1.34% and another with a rate of 1.71% and no fee.
Over the course of a year a borrower with the low rate mortgage and a fee of £995 would end up paying £10,414 compared to the no fee higher rate mortgage of £9,837 – saving the borrower £577.