Banks and building societies’ mortgage fees have soared to a new high, despite Government efforts to make borrowing easier, a financial information website has warned.
Rates have been plummeting since the Government launched the multi-billion-pound Funding for Lending scheme
Across all mortgages currently on the UK market, the typical fee being charged has risen by £112 since the start of 2013 to reach £1,522, marking the highest average figure recorded by Moneyfacts.co.uk in 25 years.
A borrower with a 10 per cent deposit who is searching for a two-year fixed-rate mortgage would have seen the average fees attached to such deals increase by more than £500 since January.
Mortgage rates have been plummeting since the British Government launched a multibillion-pound scheme called Funding for Lending last August, which gives lenders access to cheap finance so they can pass on the benefits of this to help borrowers.
But Moneyfacts warned people to be aware of a sting in the tail that comes with some ultra low-rate deals in the form of hefty fees. Some people may find it works out cheaper to go for a product with a slightly higher rate but a lower fee.
Sylvia Waycot, editor at Moneyfacts, said: “It’s easy to get caught up in the excitement of heavily marketed mortgages that shout about low interest rates, but beware that they will often be at the expense of high fees...
“If the Government is serious about rekindling the mortgage market with its Funding for Lending scheme, it should ensure all its subscribed lenders offer mortgages that exclude hiked up charges that are hidden behind low rates.”
Lenders have been reporting signs of a tentative recovery in the housing market in recent months, particularly among the first-time buyer market, a sector which has been struggling to get mortgage access since the onset of the credit crunch.
The Council of Mortgage Lenders (CML) has reported that first-time buyers have recently been accounting for around 42 per cent of all mortgage loans handed out to home buyers, amid signs that it is getting easier for people to get on the property ladder.
Mortgage lenders also told a recent Bank of England survey that they expect to step up competition to push their rates down further in the next few months.
However, Moneyfacts’ figures indicate low-deposit borrowers such as first-time buyers are seeing particularly strong increases in the fees that accompany the new mortgage deals on offer.
The average rate being offered to someone with a 10 per cent deposit on a two-year fixed-rate mortgage has dropped from 5.12 per cent in January to 4.59 per cent by the start of this month. However, the typical fee being charged for this type of deal has shot up from £921 in January to £1,423 by April – an increase of £502.
Someone with a 25 per cent deposit looking for a two-year fix would have seen the average rate on offer drop from 3.98 per cent in January to 3.5 per cent. But the typical fee has edged up by £205 to £1,736 over the period.
Meanwhile, a borrower with a chunkier deposit of 40 per cent has seen a drop of £2 in the average fee being charged on a two-year fixed rate deal since January, to reach £1,692 by April. The typical rate on offer on this type of deal has also dropped, from 3.95 per cent in January to 3.50 per cent.
Bernard Clarke, spokesman for the CML, said lenders have to fulfil certain regulatory requirements concerning the fees they charge, but provided they do so, they can devise their own pricing structure.
He said: “Some charge arrangement fees, others do not; the important issue for the consumer is that details of all fees and rates are disclosed upfront. Some lenders may offset lower mortgage rates with higher fees, which may widen choice for customers and enable them to choose a product that best suits their needs.”