When you are shopping around for a new mortgage, the chances are you focus mainly on the interest rates on offer. That’s a big mistake: there are a number of fees that could make a big difference to the cost of your mortgage.
The first – and usually nastiest – is the arrangement fee. This comes with all sorts of euphemistic names – some call it a booking fee, some a completion fee, and some an administration fee. But it is basically the money you have to hand over to set up your mortgage in the first place. This fee has risen substantially in the last few years as mortgage lenders have looked for ways to improve their profit margins in the wake of the financial crisis. In November 2005, the average arrangement fee was £411. Now it is more like £960, and very often substantially more – some come in at over £2,000. Indeed, so large have the recent rises been that the Office of National Statistics says these fees made a difference to last month’s inflation figures (in the wrong direction, obviously).
However, as ever, lenders are at pains to try to prevent you from knowing exactly how much you are paying. Take the Skipton Building Society. It now levies an ‘application fee’ of £195 on top of its ‘completion fee’ of £995. Both words are meaningless, of course – it just adds up to a high arrangement fee.
All this matters. It is vital to keep an eye on all the fees and to factor them into the total cost of your mortgage. “Only then can you be certain that you are comparing like with like and getting the right deal for your circumstances,” says Melanie Bien in The Daily Telegraph. For some people with large mortgages it will be worth taking the up-front hit of a high arrangement fee in order to get a lower interest rate. But others might be better off with a slightly higher interest rate.
Another fee to consider when you are looking at mortgages is the early repayment charge (ERC). During the initial deal period of your mortgage you usually have to pay a penalty to get out of the mortgage, which is often a percentage of the amount outstanding. That makes sense. But note that some mortgages have ERCs that last beyond the deal period. That doesn’t make sense.
Finally, watch out for exit fees. This is a charge levied when you close your mortgage either when you finish paying it off, or switch lender. You should never have to pay more than was stated on your original contract. If you have done so in the last six years, complain to your ex-lender and if they don’t react within eight weeks, take it further fast: complain to the Financial Ombudsman Service.
Some of the best low-fee mortgage deals on offer:
The best low-fee mortgage deals
Based on a loan of £150,000
| Lender | Rate (%) | Max LTV* (%) | Fee (£) | Cost** |
|---|---|---|---|---|
| Nationwide | 4.39 | 50 | 999 | 50,464 |
| First Direct | 4.59 | 65 | 199 | 50,685 |
| HSBC | 4.59 | 60 | 999 | 51,485 |
| Yorkshire BS | 4.59 | 60 | 995 | 51,485 |
| Nationwide | 4.59 | 50 | 99 | 50,585 |
*loan to value **over five years. Source:moneysupermarket.com