Homebuyers should consider the total cost of a mortgage – rate plus fees – when comparing products after research showed that lenders have been increasing fees to offer lower headline rates.
The cost of arranging a mortgage has increased over the past 18 months, with the average arrangement fee for a tracker mortgage rising by 15 per cent from £772 in September 2009 to £890 today, according to Moneysupermarket.com.
Mortgage experts have warned that the lowest headline rate may not actually be the cheapest option because of the high fees that some deals carry.
“Lenders wanting to top the best-buy tables have to offer market-leading rates but are making up the difference in the fee,” says Melanie Bien of Private Finance.
For example, Santander and Hanley Economic Building Society both have two-year fixes at 2.79 per cent and 2.89 per cent that come with fees of £1,995 and £1,999, respectively. In comparison, Yorkshire Building Society has a two-year fix at 3.49 per cent, with a £95 fee.
The best deal will depend on the amount a customer is looking to borrow. According to Bien, typically the bigger the mortgage you take out, the more important the rate is rather than the size of the fee.