Average mortgage fees rise

Borrowers should always consider the overall cost of a product including any arrangement fees, and all brokers will compare mortgages on this basis. Lately, due to higher rates putting pressure on affordability both on residential and buy-to-let mortgages due to the required stress-testing, many lenders have been tweaking their product line-up to give options with lower rates but larger and in some cases percentage fees. That way the lender can still generate the same income from the product, but the headline rate attracts more clients and is gentler on the affordability calculations. Borrowers who only focus on and compare the headline rate will often end up paying more overall.

Borrowers should always consider the overall cost of the product not just the headline rate and any borrower using a broker will almost certainly looking at total cost over the 2, 3 or 5 year period lenders right now will be chasing lending targets by dropping rates but at the same time having product fees for borrowers who wish to take advantage of the lower rate so always get advice to ensure you are best placed going forward.

Arrangement fees should always be factored in when sourcing a client's mortgage; for instance, the very cheapest buy-to-let rates will include a percentage fee which can be eye-watering. Obviously you secure a cheaper rate by paying a fee, but this may not returned over the deal period and that can be worked out very easily. My rule of thumb is the lower the loan, the less likely it is that paying a fee for a cheap rate will work in the client's favour.

Although, fairly insignificant it is a rise none the less. Those looking for a new mortgage deal should always take into account the cost and impact of any fees the lender charges, especially if you are considering adding them to the loan. Adding a typical fee will add in the region of £5 per month to a typical 25 year mortgage. So an increase will of course cost you a little more, but it does usually come accompanied with a better rate than not paying a fee. The mortgage world is a changing market place, which put simply means go and get the deals whilst they are there, when the money has gone a new deal takes its place, (usually) but the lender may not have been able to get as good a deal at the wholesalers, so any extra cost they have is passed onto you the consumer. Lenders are always looking to make their shiny new product attractive to sell more of it, quicker. So if buyers are so rate fixated then they will simply do the cup trick with fees.

It's hardly surprising that mortgage fees are on the rise as lenders try to work out the magic formula to get their money out there again. Product design is one way they can do this, by offering more appealing headline interest rates, and at the same time, offsetting some of the interest into the fee charges. The low rate-higher fee or higher rate-lower fee equation is entirely subjective and depends on the applicant's circumstances and priorities. There is no overall right or wrong answer, one size does not fit all, and when money is tight, the overall cost to repay is not the primary consideration, it is the monthly payment. More than ever, get in touch with a mortgage professional, be open with them about what you want and let them cut through the increasing confusion on what is "best".

All advisers should compare products with or without fees to identify the right fee for the client. The issue is when adding these increasing fees to the mortgage the overall cost of the mortgage is also going to be more expensive over the life of the mortgage. So although the interest rate may look attractive with the higher fee it's important to compare the overall cost of the mortgage both with and without the fees added to the mortgage.

The need for advice has never been greater- best is not always cheapest!

As always the mortgage product is a combination of rate and fee, not either in isolation. Fees have edged higher with some lenders just so they can offer a better rate, in particular the Buy to Let market fees are substantially higher to offset lower rates. In all situations, our normal position is to work out the cost of any mortgage over the term of the deal, so if it is a 2yr product, you add 24 monthly payments, any fees payable, and deduct any incentives that may be on offer. That calculation is checked with every other similar deal to work out the 'cheapest' product. But if you are adding fees to the loan, remember they will need to be repaid some day. Speak to your Mortgage Broker who will do this analysis for you, and will recommend which is the best option for the many available.