Mortgages are not best known for being easy to understand. But the confusion is only compounded by different lenders offering different rates and fee structures, making price comparisons very tricky indeed.
All the fees you have to pay a lender to set up a mortgage are known as ‘arrangement fees’. They’re also commonly known as booking fees, completion fees or administration fees.
And we’re not talking small-fry figures here. Which? has found that in the past three years, the average arrangement fee that lenders charge on residential mortgages has risen by 70%. Since 2009, they’ve grown from £878 to £1,479 and have increased by more than 30% in the last year.
A flurry of fees
And it’s not just the cost of setting up your mortgage you have to watch out for. Last year, an investigation by Which? Money found that the majority of lenders now charge more than 20 different types of fees. They’re charging for a plethora of things such as overpayments, arrears, changing the length of your mortgage and even buying home insurance from a different provider.
People instinctively choose mortgages with the best interest rates, but this can easily prove to be a false economy if you rack up thousands of pounds in fees. A few hundred pounds here or there may not seem like much, but in a market where many consumers switch mortgages every few years, the costs can be significant.
Equally, shopping around for a mortgage which comes with no or low fees may end up coming back to bite you if you have to pay a higher rate of interest as a result.
Compare and compare alike
Ideally, people should shop around and find the cheapest mortgage based on what the total cost of the loan will be. But often, the different fees make it difficult to compare products in a meaningful way. Especially as it’s not always clear when or why a fee is going to be charged.
In a previous Conversation on the subject, commenter Brian told us about his daughter’s experience with confusing mortgage fees:
‘Our daughter is a first time buyer and the mortgage adviser at the estate agent handling the sale has recommended a particular mortgage provider because they provide a free valuation. However, there is a “valuation administration fee” to pay which, coincidentally, equals the fee for a valuation survey which the estate agent sells. This seems like an underhand tactic, since the administration of a valuation survey does not seem a task worth £149.’
Many banks and building societies don’t draw attention to these fees when customers take out a mortgage. And the amount of information given by lenders on their websites varies considerably.
The mortgage industry claims that by offering a range of different fee structures, lenders are providing choice and flexibility. But in practice, we’re all just being confused. Wouldn’t it be far better if lenders were upfront about the total cost of borrowing so that people could easily compare deals?