Mortgage fees rise by 70%

Robert Powell
by Lovemoney Staff Robert Powell on 13 January 2012  |  Comments 4 comments

The average mortgage fee has risen by a huge £609 over the past 12 months. So what are your fee-free options?

Mortgage fees rise by 70%

Mortgage fees are now 69% higher than they were 12 months ago, according to data from Moneyfacts.co.uk.

The average fee for a residential mortgage in January 2011 was £889, but has now jumped to a staggering £1,498.

The rise comes across a year characterised by falling mortgage interest rates. Back in July, average rates for home loans reached their cheapest level since records began in 1988.

But rapidly rising fees can distort the true cost of these cheap deals and sometimes make higher rate, lower fee mortgages a better value option overall.

Massive fees

Back in May, Chelsea Building Society broke something of an ideological barrier by launching a five-year fix for less than 4%. This quickly triggered a raft of cheap deals in the market: ten-year fixes began appearing at 3.99%, five-year deals dropped to 3.34% and two-year mortgages plunged to 1.99%.

However one thing almost all of these headline-grabbing mortgages had in common was a massive fee – usually in the region of £1,500 to £2,000.

Huge charges like these push up the overall cost of mortgages for borrowers wishing to get hold of the cheapest rates.

But if you don't fancy shelling out a fortune on a mortgage fee, there are still some attractive fee-free deals to consider.

Free options

Just last week Clydesdale and Yorkshire Banks announced that they would be waiving fees for customers who are looking to take a new mortgage or switch before Saturday 25th February. This represents a saving of £999 across the two banks' mortgage ranges.

Customers remortgaging from another lender also won’t have to pay any legal or valuation fees if they use Clydesdale and Yorkshire Bank’s appointed solicitors and valuers.

This offer throws up a host of fairly competitive rates. Borrowers with a 25% deposit will be able to fix for two years at 3.49% or five years at 4.09%. If you have a bit more to hand over up front, 35% deposit deals are available at 3.29% fixed for two years and 3.79% for five.

Halifax has also launched a new fee-free mortgage aimed at first-time buyers. The loan is available to borrowers with deposits of between 10% and 15% and is fixed at 5.99% for two years. However, Clydesdale and Yorkshire’s two-year, low-deposit deals trump this offering: a two-year fix with a 15% deposit is 4.49% while a 10% deposit attracts a 5.59% rate. All have no fees.

But while competitive, these deals aren’t actually the cheapest fee-free options around. Take a look at the tables at the bottom of this article for some mortgages which present even better value.

Doing the sums

Deducing if a mortgage with no fees is really the cheapest option can be a tricky process.

In the table below I have totted up the total cost for the initial term of a 25-year, £150,000 loan across a range of mortgage types. This will give you some idea about which type of mortgage is, on paper, the best value.

Lender

Term

Rate

Max LTV

Fee

Monthly repayments

Total cost over initial term

Principality BS

Two-year fixed

3.14%

75%

£0

£722.29

£17,334.90 over two years

Market Harborough BS

Two-year fixed

2.69%

75%

£1,595

£687.37

£18,091.83 over two years 

Co-operative Bank

Five-year fixed

3.69%

75%

£0

£766.31

£45,978.41 over five years

Britannia

Five-year fixed

3.39%

75%

£999

£742.12

£45,525.92 over five years

First Direct

Two-year tracker

2.69% (2.19% + base rate)

65%

£0

£687.37

£16,496.83 over two years

First Direct

Two-year tracker

1.99% (1.49% + base rate)

65%

£1,499

£635.05

£16,740.24 over two years

Just as we discovered back in May last year, the cheapest deal often varies: occasionally the fee-free option beats the fee-charging one, and occasionally not.

In this table the best fee-free two-year fixed and tracker deals are better value over the full 24 months than the fee-charging mortgages with a cheaper rate. However this is reversed for the five-year fix.

So with so much variance, how can you tell if a fee-free mortgage is really right for you?

Theory vs. practice

Whether you opt for a fee-free or fee-charging mortgage depends more on your own situation than the markets. And that’s because all of the calculations above are theoretical, not practical.

Even if on paper a cheap rate, fee-charging deal is better value over the life of the mortgage, you’ll have trouble getting hold of it if you haven’t got the initial cash to fork out.

Adding the fee onto the loan is an option. But remember if you take this path, you’ll be paying out interest on the fee as well. This will boost the total amount repaid considerably, especially if you’re only borrowing a small amount.

If you’re fretting about mortgage fees, your best bet is to speak to a broker; they will be able to give you advice regarding the most suitable deal for your circumstances. Head over to our mortgage centre now for details of how to contact a fee-free lovemoney.com broker.

And in the meantime, here are 20 of the best fee-free mortgages on the market today.

Ten fee free fixes

Lender

Term

Interest rate

Max LTV

Principality BS

Two years

3.14%

75%

Clydesdale Bank

Two years

3.89%

80%

Halifax

Two years

5.99%

85% - 90%

First Direct

Three years

3.49%

65%

First Direct

Three years

3.69%

75%

Britannia

Three years

4.29%

85%

Yorkshire Bank

Five years

3.69%

65%

Co-operative Bank

Five years

3.59%

75%

Newcastle BS

Five years

4.27%

80%

First Direct

Five years

4.49%

85%

Ten fee free trackers

Lender

Term

Interest rate

Max LTV

First Direct

Two year tracker

2.69% (2.19% + base rate)

65%

First Direct

Two year tracker

2.89% (2.39% + base rate)

75%

HSBC

Two year discount

2.49% (1.45% off SVR)

60%

HSBC

Two year discount

3.84% (0.1% off SVR)

90%

Principality BS

Three year tracker

2.89% (2.39% + base rate)

75%

Northern Rock

Three year tracker

4.18% (3.68% + base rate)

80%

HSBC

Lifetime tracker

2.39% (1.89% + base rate)

60%

HSBC

Lifetime tracker

2.59% (2.09% + base rate)

70%

HSBC

Lifetime tracker

2.99% (2.49% + base rate)

80%

HSBC

Lifetime tracker

4.59% (4.09% + base rate)

90%

Worth it?

Are fee-free mortgages worth it? What are you experiences?

Let us know using the comment box below.

More: 5 ways to cut your mortgage costs in 2012 | Buy a house with 90% mortgage

Use lovemoney.com's innovative new mortgage tool now to find the best mortgage for you online

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

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.

 

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Comments (4)

  • ogram23
    Love rating 6
    ogram23 said

    Nosbort has the right idea. Lovemoney like most do not fully analyse the short term fixes and fee impacts. The first one that should be looked at is the amount owing at the end of the fix, often the difference can be large enough to outweigh any peceived savings.

    Multiply this over a number of fixes and the fees involved over the total term and then you may be getting some idea of the rip off that the banks have introduced by the compexity of fixing/fee system.

    Even if you provide the fee instead of adding to the loan there is a penalty that should be allowed for as you would lose interest on this amount ( although this is small beer the last couple of years).

    Report on 13 January 2012  |  Love thisLove  0 loves
  • nickpike
    Love rating 308
    nickpike said

    Hold fire. Wait for prices to drop.

    Report on 13 January 2012  |  Love thisLove  0 loves

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