The mortgage market has become quite the record-breaker of late, with mortgages rates reaching some of the lowest levels on record. However, this has introduced some less-appealing baggage, as many borrowers are finding themselves faced with increasing high arrangement fees, even though mortgage rates remain incredibly low. Multiple lenders have hiked fees to the highest level in almost 2 years in an attempt to recoup profits and increase margins, causing some borrowers to pay up to £75,000 for a high loan to value (LTV) loan. These inflated fees have consequently increased the average mortgage fee despite the average 2 year fixed rate falling from 3.13% to 2.52% in a year alone.
Although arrangement fees provide lenders with the ability to offer greater flexibility, the cost of administering a mortgage shouldn’t vary so greatly, thus causing many onlookers to question why these higher charges are in place at all. This provides evidence that many of the headline grabbing, ‘lowest-rates-on-record’ are likely being compensated for in other areas, making the necessity to assess the overall value of a mortgage even more crucial. For those seeking cost-effective deals, the array of choice now available is unsurprisingly puzzling, especially as the pockets full of cash required to arrange a mortgage continue to deepen.
The evolution of mortgage fees since 2014 has been somewhat of a rollercoaster ride. Rates dramatically fell in 2014, before fluctuating thereafter into a definite uptick over the last year, until today’s figures topped the chart. Yet with the gap between low rates and high fees growing increasingly further apart, borrower’s ability to find a lucrative deal seems to be slipping out of reach.
In the current low-rate market, the majority of borrowers are being advised to switch deals once their fixed term ends, yet large fees have the potential to make moving to a new deal even more costly – especially for shorter term mortgages. In many cases, providers and borrowers are focusing so keenly on interest rates that the cost of large fees are not being accounted for, even though – when added to a mortgage advance – the consequential amount borrowed has the potential to push monthly repayments skyward. This can even mean you end up repaying the advance over the full mortgage term, generating years of extra interest charges.
This makes the importance of reading between the lines to find the true cost of a mortgage paramount, to ensure any fees or incentive packages will not have a detrimental effect on your finances.
A principle drawback of higher fees is that they can deter borrowers from switching elsewhere, even if they are currently stuck on their lender’s pricey Standard Variable Rate (SVR), despite being able to save thousands by remortgaging. However, it is still possible to save even with these higher fees in place, and even to find a fee-free mortgage deal when sourced in the right way. Equally, if you lock into a longer deal, such as a 5 year fixed rate rather than a 2 year fix, you could avoid paying a further set of fees sooner.
As such, higher arrangement fees are not necessarily a bad thing, as long as you remain informed. Naturally, lenders will display this behaviour in order to capitalise on demand and meet target margins ahead of any future market turmoil. Yet using higher fees to distort rates is undoubtedly confusing. As a consumer, you may not be aware of rate changes or the benchmarks of market norm – which is where we can help. By speaking to a broker, you can ensure you remain aware of market activity and how you may be affected. A broker will equally be able to direct you to the best and most transparent deal available, avoiding additional fees or hidden small print.
If you have any questions about this, please do not hesitate to get in touch with Enness, where one of our expert brokers will be happy to talk through your options with you.