With mortgage rates at all-time lows, now must be the best time in history to get a cheap mortgage, right? Not exactly, because while interest rates are sliding, mortgage fees are soaring.
In fact, according to financial researchers Moneyfacts, mortgage fees have hit a 25-year high. So the potential savings on offer from switching to lower rates are partly being offset by high charges just for bagging that mortgage.
Here's how the average fee across all mortgages has risen so far this year:
|
Month |
Average fee |
|
January |
£1,410 |
|
February |
£1,436 |
|
March |
£1,412 |
|
April |
£1,522 |
Source: Moneyfacts
Since the start of 2013, average mortgage fees have grown by £112, from £1,410 in January to £1,522 today. In effect, this is a near 8% leap in the space of just three months. This trend has taken typical fees for a mortgage to the highest recorded by Moneyfacts since the boom years of 1988.
Fees rocket for low-deposit loans
While the average mortgage fee is up nearly 8% this year, fees for mortgages with smaller deposits have shot sky-high.
For instance, here's how the average rate and fee for two-year fixed-rate mortgages with a deposit of 10% (that is, 90% loans) have soared since the start of 2013:
|
Month |
Average rate for 90% loans |
Average fee for 90% loans |
|
January |
5.12% |
£921 |
|
February |
4.75% |
£934 |
|
March |
4.61% |
£945 |
|
April |
4.59% |
£1,423 |
Source: Moneyfacts
As you can see, while rates have been steadily coming down for 90% mortgages, fees have been shooting upwards. The average fee for a loan of this type today is £1,423, up a whopping £502 on the average fee of £921 recorded in January 2013.
[SPOTLIGHT]That's a rise of more than half (55%) in just three months.
Low-risk buyers get great deals
At the other end of the risk scale are mortgages with large deposits. Lenders regard these loans as very low risk and, therefore, reserve their lowest rates for these borrowers. While interest rates have also been coming down for high-deposit loans, their fees have barely budged this year.
For example, here's how the average rate and fee for two-year, fixed-rate mortgages with a deposit of 40% (that is, 60% loans) have changed since the start of 2013:
|
Month |
Average rate for 60% loans |
Average fee for 60% loans |
|
January |
3.95% |
£1,694 |
|
February |
3.85% |
£1,694 |
|
March |
3.59% |
£1,727 |
|
April |
3.50% |
£1,692 |
Source: Moneyfacts
The average yearly interest rate for a two-year fix has slipped from 3.95% in January to 3.50% in April. On the other hand, the average loan fee has barely changed, down a mere £2 from £1,694 in January to £1,692 in April.
While borrowers with large deposits (or plenty of home equity) enjoy the cheapest home loans in history, first-time buyers and other higher-risk homebuyers are losing out, thanks to sharply higher mortgage fees.
Home loans with sky-high fees
Let's find out which lenders are hiding hiked-up charges behind seemingly low rates. According to Moneyfacts, these five home loans charge the highest fees for two-year fixed-rate mortgages (the most popular loans at present):
|
Lender |
Fixed-rate details |
Follow-on rate |
Minimum deposit |
Fees |
|
Yorkshire BS |
1.79% to 30/06/15 |
4.99% |
40% |
£1,345 |
|
Chelsea BS |
1.74% to 31/07/15 |
5.79% |
40% |
£1,545 |
| Cheltenham & Gloucester | 1.89% to 31/08/15 | 3.99% | 40% | £1,995 |
|
HSBC |
1.79% to 31/05/15 |
3.94% |
40% |
£1,999 |
|
First Direct |
1.89% for two years |
3.69% |
35% |
£1,999 |
Source: Moneyfacts
As you can see, there are some incredibly low rates in the above table. In fact, they are the lowest fixed rates I can recall in more than 25 years in financial services.
Then again, all of these below-2% yearly rates come with bumper fees attached, ranging from £1,345 at Yorkshire BS to nearly £2,000 at C&G. Also, to access this cheap lending, you'll need a deposit (or existing equity) upwards of 35% to 40% of the purchase price.
It just highlights that when looking around for a cheap mortgage -- either to buy a home or remortgage for lower repayments -- always look beyond the headline rates. Otherwise, you may overlook huge fees waiting to take a big dent out of your deposit or existing equity!
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At Lovemoney, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free Lovemoney 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), 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.