New data from Moneyfacts has revealed that average mortgage fees have reached £1,005 this month, rising by £15 since August when the Bank of England increased interest rates.
Despite headline rates continuing to fall, the figures show that the average mortgage fee has risen consistently from £967 two years ago to reach the highest average recorded in more than five years.
Charlotte Nelson, of Moneyfacts, said: “It is disappointing news that the average mortgage fee is not only on the increase, but it is the highest it has been in over five years, surpassing £1,000 for the first time since August 2013 (when the average stood at £1,001).
Providers are currently fighting among themselves to be seen as the lender offering the lowest rate on the market, all in a bid to attract borrowers who are considering remortgaging after the recent rate rise by the Bank of England. However, the increase in the average fee is in direct response to these rate cuts, as lenders try and compensate these deals.
Despite the Bank of England increasing the base rate twice since November 2017 – from 0.25% to the current rate of 0.75% – mortgage rates are still far lower than providers’ costs. For example, the average two-year fixed rate only stands 0.16% higher than it did in November 2017, increasing from 2.33% to 2.49%. By increasing fees, providers are making a small attempt to recoup some of this extra cost.
As providers start to diversify into different sectors and types of products, the arrangement fee element of the deal allows them greater flexibility on not just the rates they offer, but the incentives they add as well. However, with all these extra elements, borrowers must be careful to pick the right product when choosing a mortgage.
While these low-rate deals look great on paper, the hefty fee that goes alongside them can mean that what appears to be a cheap offer, may in reality be a much costlier one. For example, based on the lowest rates available at 60% loan-to-value, opting for the lowest rate mortgage without a fee would make a borrower £577.02 better off than opting for the cheapest rate in the market alone.”