- Average fee increases from £339 in July 2004 to £480 at the start of 2005
The fee that mortgage lenders charge borrowers to take out competitive loans has risen by 42% in the last six months as they look for ways to increase their income. As the UK consumer becomes more financially savvy and shops around more for a competitive interest rate, lenders are being forced to look at alternative ways to make some profit on their products. This is no more obviously apparent than in the upward movement in arrangement fees and exit fees during the last six months.
Ray Boulger, senior technical manager at Charcol, comments: “The UK mortgage market is arguably the most competitive in the world, with over 100 lenders vying for business. This competition has been hugely beneficial to the consumer, who has a huge choice of mortgage deals with a combination of different interest rates, fees and features. With this consumer success comes the need for the lenders to make their profit from somewhere. The increase in both arrangement fees and exit fees has helped them to achieve this.”
Charcol’s calculations show that fees have increased, on average, by 53% since the start of 2004, with well over three-quarters of this jump occurring in the second half of the year. In fact, the average fee increased from £339 in July 2004 to £480 at the start of 2005. The following table, calculated by taking the fees on the market-leading deals at the time, demonstrates the trend.*
Boulger continues, “We often extol the virtues of looking beyond the headline rate at the whole structure of a mortgage, and with arrangement and exit fees clearly on the up, this has never been more important. That is not to say that a loan with a high fee is poor value. There is a trade off between fees, interest rate and features. As a rule of thumb a mortgage with a higher fee but a lower interest rate will be better value for larger mortgages and vice versa. With regards to features, the general message to borrowers is don’t pay extra for features you won’t use but, for borrowers who will make use of them, there is a wide choice of mortgages offering varying degrees of flexibility.
“What is clear is that in a hugely competitive market lenders will continue to try to conjure up new ways of generating extra income. It is very easy for borrowers to succumb to lenders’ advertising and take a loan that is inappropriate for them. Choosing the wrong deal can prove costly in both the short and long run, and so getting it right first time is a must. Therefore seeking quality independent advice is of paramount importance for many borrowers.”