Homeowners face mortgage hike shock

Last Modified: 04 Jun 2007
Source: PA News

Homeowners coming towards the end of fixed mortgage deals have been warned they face a hike in arrangement fees as well as higher repayment rates.

People who took out two-year fixed rate mortgages in the second quarter of 2005 could see their monthly mortgage bill rise by up to a third if they move on to a lenders' standard variable rate (SVR), research found.

And by moving to a new fixed deal to soften the impact, borrowers could be forced to stump up fees in excess of £1,000 to obtain current leading rates. In all, up to one million people could be heading for a nasty shock as they see deal terms finish and mortgage rates jump in 2007.

Analysis from mortgage broker Mortgage Advice Bureau estimated that between April and June 2005 alone, 178,000 people took out a two-year fixed rate deal.

At that time the best fixed-rate mortgages offered customers a rate of around 4.49%, far below the current average SVR of 7.40%.

It is also lower than the best deals on the market today, with the leading two-year fixed now carrying a 4.99% rate. And with another interest rate increase on the cards, the monthly mortgage bill for homeowners could go even higher during 2007.

As well as higher repayment rates, homeowners are likely to face a huge hike in the amount they pay banks and building societies to get a new deal. In June 2005, the best fixed rate carried an arrangement fee of £389. Borrowers wanting to take advantage of today's best rate will need to find £1,499 to pay the arrangement fee.

Rob Clifford, managing director of Mortgage Force, said: "The payment shock for some people will be significant. Not many people can afford a monthly cost rise of 25%. But I do not think we will see the number of arrears going up."

He added that the typical arrangement fee for fixed deals had gone up from around £200 in 2005 to £700 or £800 today.

Mr Clifford said: "A borrower should look at what their existing lender is willing to offer. But be warned, even existing lenders may have an arrangement fee. Do not think that you will be switched into their best deal for free. But you may avoid legal and survey costs."

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