Avoid rising mortgage fees

by John Fitzsimons on 05 April 2011  |  1 comment
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Low-fee and fee-free mortgage deals offer a great alternative to punishing mortgage fees.

The topic of inflation, and its potential effect on the mortgage market has garnered a fair bit of press of late. Even I was at it, in Rate rises will hit 90% of borrowers, highlighting that rising inflation makes it more likely that the Bank of England will have to raise bank base rate. And that could spell trouble for the many borrowers on variable rates.

What hasn’t been discussed too much though is the effect that mortgages themselves are having on inflation. Indeed, one aspect of mortgages is actually helping to push inflation upwards.

The mortgage fee...

Rising fees

Inflation is calculated by the Office of National Statistics, using a basket of goods. There is an additional item within the basket, titled ‘miscellaneous goods and services’ and according to the ONS, one of the reasons the cost of such goods and services has risen is the rising cost of mortgage fees.

The thing is, mortgage fees come in all sorts of different names, which can confuse borrowers so that they are not entirely sure what they are paying. They may be called product fees, or completion fees, or reservation fees, among various other names.

Varying sizes

It’s not just the names used for mortgage fees that vary wildly – the size of the fees charged is also variable.

Of course, the reason inflation has been impacted by mortgage fees is that in many cases the size of the fee charged has been growing. The average mortgage fee has been around £1,000 for some time now. But recent months have seen a succession of new mortgage deals with fees far higher, in some cases as much as £3,000.

Of course, there is a reason that lenders get away with charging such astronomical fees – they tend to be levied on the most competitive rates. So you may decide that it’s worth paying an extra £2,000 up front on a fee, for the sake of a rate that’s a bit cheaper and will likely save you far more in the long run.

Indeed, many borrowers don’t even worry about the size of the product fee, instead simply adding it to their mortgage debt. That’s not the smartest move in the world, as you then end up paying interest on the fee so it costs you far more over the course of the mortgage than if you had paid it upfront. But many of us do it all the same.

Say no to fees!

There is an argument that there’s really no need for mortgage fees. After all, the lender is making money from the borrower thanks to the interest rate charged on the loan. Why do they need to stick a fee on top as well?

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Besides, buying a house is an expensive business, and that expense stretches beyond the mortgage. You also have to consider solicitor fees, valuation fees, estate agency fees, perhaps Stamp Duty. And that’s before you even think about furnishing the property!

Thankfully there are plenty of mortgages on offer which come fee-free, or at least with fees of far more manageable sizes. I’ve detailed some of my favourites below, none of which boast a fee larger than £500.

You do have to accept that, in most cases, a slightly more competitive rate will be available for the sake of stumping up a little extra at the outset. But for borrowers who are unable to do so (or simply unwilling to add the fee to the mortgage debt) these mortgages offer a decent alternative.

15 low-fee fixed rate mortgages

15 low-fee tracker mortgages

*Remortgage only

More: Five ways to increase your savings | How to cut your Inheritance Tax bill

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This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.