Surge in arrangement fee mortgages
Updated on 12 June 2008
The number of fixed-rate mortgages with hefty arrangement fees has rocketed in recent months, a report has indicated.
Research from financial website MoneyExpert.com found the amount of fixed deals on the market with charges greater than £750 has gone up 14-fold in the past 18 months.
It comes a day after Abbey, one of the UK's largest lenders, announced that it will no longer allow borrowers with small deposits to add the cost of arrangement fees to their mortgage
According to MoneyExpert.com's figures, there are now 323 different fixed-rate deals that charge fees above £750, representing 34% of all fixed rate loans, compared with just 22 in September 2006.
At the same time, the average size of application fees has risen by 66%, jumping from an average of £517 18 months ago to £860 now.
People wanting to take out the current best buy two-year fixed rate mortgage offered by First Direct at a rate of 5.59% will have to pay total arrangement fees of £1,498.
Sean Gardner, director of MoneyExpert.com, said: "Such high mortgage application fees will come as something of a shock to many homebuyers. We're just not used to these levels of charge.
"Anyone looking to remortgage or to buy a property for the first time will need to recalculate their options if they haven't factored in fees."
Many lenders do offer borrowers the option of paying a lower fee or even no arrangement fee at all in exchange for paying a higher interest rate, although for short-term deals the overall cost generally works out about the same as paying a higher fee and getting a lower rate.
For example, Lloyds TSB's lending arm Cheltenham & Gloucester has a two-year fixed rate deal for someone borrowing 90% of their home's value of 6.45% with a £995 arrangement fee, rising to 6.95% for people who take out its no-fee option.
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