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 |
|
Two-year fixed |
3.14% |
75% |
£0 |
£722.29 |
£17,334.90 over two years |
|
|
Two-year fixed |
2.69% |
75% |
£1,595 |
£687.37 |
£18,091.83 over two years |
|
|
Five-year fixed |
3.69% |
75% |
£0 |
£766.31 |
£45,978.41 over five years |
|
|
Five-year fixed |
3.39% |
75% |
£999 |
£742.12 |
£45,525.92 over five years |
|
|
Two-year tracker |
2.69% (2.19% + base rate) |
65% |
£0 |
£687.37 |
£16,496.83 over two years |
|
|
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 |
|
Two years |
3.14% |
75% |
|
|
Two years |
3.89% |
80% |
|
|
Two years |
5.99% |
85% - 90% |
|
|
Three years |
3.49% |
65% |
|
|
Three years |
3.69% |
75% |
|
|
Three years |
4.29% |
85% |
|
|
Five years |
3.69% |
65% |
|
|
Five years |
3.59% |
75% |
|
|
Five years |
4.27% |
80% |
|
|
Five years |
4.49% |
85% |
Ten fee free trackers
|
Lender |
Term |
Interest rate |
Max LTV |
|
Two year tracker |
2.69% (2.19% + base rate) |
65% |
|
|
Two year tracker |
2.89% (2.39% + base rate) |
75% |
|
|
Two year discount |
2.49% (1.45% off SVR) |
60% |
|
|
Two year discount |
3.84% (0.1% off SVR) |
90% |
|
|
Three year tracker |
2.89% (2.39% + base rate) |
75% |
|
|
Three year tracker |
4.18% (3.68% + base rate) |
80% |
|
|
Lifetime tracker |
2.39% (1.89% + base rate) |
60% |
|
|
Lifetime tracker |
2.59% (2.09% + base rate) |
70% |
|
|
Lifetime tracker |
2.99% (2.49% + base rate) |
80% |
|
|
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
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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.