Many homeowners, worried about future interest rate rises, are looking to fixed rate mortgages and mortgage lending companies are capitalising on this trend by increasing the fees they charge on their most competitive products.
Interest rates are still at a record low but in many instances consumers are paying more for the cheapest contractor mortgages.
David Hollingsworth, from London & Country mortgage brokers, explained that arrangement fees are normally around £1,000 but recently the occasional deal has started to attract a fee of £1,500 or £2,000. However, these high fee deals usually charge lower interest rates.
The Leeds Building Society recently launched a variable rate two-year discount deal with an arrangement fee of £2,999. The interest rate on this deal is just 2.54% at present but of course it will increase when the Bank of England increases the base rate.
Skipton Building Society has started an upfront application fee of £195 as well as a £995 completion fee.
Another new trend is for mortgage lenders to work out the arrangement fee as a percentage of the amount borrowed. This could be anything up to 2.5% which for someone borrowing £150,000 works out at a whopping £3,750. Previously, a lot of lenders allowed customers to add the arrangement fee to the cost of the mortgage but now some want the money upfront. First-time buyers, who have struggled to save enough for a deposit, would this particularly hard to bear.
If you are tempted by a low rate mortgage, get your calculator out and work out the full cost, including fees, before you make the decision to buy. You may just discover that the low rate deal is not as good as it appeared at first glance.
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