Percentage Penalty
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New analysis of the mortgage market suggests that mortgage lenders are increasingly charging percentage mortgage fees instead of flat fee. As a result many homebuyers will face a significant increase in the fees they pay when the time comes to remortgage.
Mortgage margins
Mortgage lenders, not content with making their cash from the interest repayments on the loan have introduced application fees to ensure their profits. In many cases those people remortgaging will barely notice the charge, as they tend to be rolled straight into the mortgage debt. These charges can however run into thousands of pounds and those people remortgaging must take these charges into account.
On the up
Over the past twelve months there has been a 14 per cent increase in the number of products charging a percentage fee and these products now account for 49 per cent of the market, up from 43 per cent.
Debt slice
When it comes to percentages, mortgage providers charge between 0.4 and 2.5 per cent of the value of the loan, meaning the larger your mortgage the more you will pay. The average percentage fee mortgage charges 0.89 per cent and on a typical home loan of £150,000 this would equate to a charge of £1,335.
Larger loans
Only 4 per cent of products place a cap on the fee they charge. So, for those people borrowing large sums of money, say £500,000, they could face an application fee of up to £4,450 based on a 0.89 per cent fee.
Settle for a set fee?
Fifty one per cent of the mortgage market now charges a set fee, down from 57 per cent last year. There’s some speculation that the banks that provide most of our mortgages are increasing the number of percentage fee products purely to bolster their balances during these difficult times. The average set fee comes in at £790, which in many ways is quite modest compared to the percentage fees.
Competitive offers
While the average set fee comes in at £790, many of the banks have introduced competitive low fee offers for those people with a sizeable amount of equity in their property and a strong credit history. Last year there was only one mortgage charging between £100 and £200 but today there are 49 products all of which provide good value on a fee basis.
Time to buy
Anyone coming to the end of their existing mortgage deal or thinking of buying a house for the first time will need to take mortgage fees into account when deciding which lender to choose. The fees can run into thousands of pounds and add significantly to the cost of a mortgage, so it’s crucial that borrowers take more than just the headline rate of interest into account when selecting their mortgage.
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