The good news for homebuyers is that fixed mortgage rates are starting to come down again. After four base rate rises this year, the financial markets are starting to conclude that rates are at, or close to, the top of the cycle. A number of lenders, having offered rates as high as 5.49% over the summer, are now offering fixed-rate deals of less than 5%.
But homebuyers should look carefully at the small print on some of these deals, says Liz Phillips in the Daily Mail. Rates may have come down, but arrangement fees have often gone up.
It’s a ruse used by some lenders to get into the best-buy tables: they offer low rates on short-term mortgage deals, but make their profits by charging higher fees.
Two years ago, arrangement fees were typically £300; now they average £400 to £500, according to David Hollingworth of London and Country, a broker. Lenders have hiked their fees by an average of 20% over the past two years, boosting profits by £144m a year, says Clare Francis in The Sunday Times.
In the worst cases, fees have almost doubled, says broker Marketplace. Borrowers now pay up to £1,500, compared with £700 two years ago. Birmingham Midshires has one offer, available only through brokers, with an interest rate set at a keen 0.76% points below base rate for two years, making it currently 3.99%. But the arrangement fee is a massive £1,500.
Alternatively, Saffron Walden building society has a two-year discount with a slightly higher rate of 4.64%, but anyone remortgaging has their valuation fees refunded and gets £300 cashback. The arrangement fee is just £199.