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We’re stuck in a mortgage fee maze

Garden hedge maze

Once upon a time, finding the lowest interest rate was all mortgage borrowers had to worry about. But nowadays, borrowers face a litany of extra fees and charges to cloud the true cost of what they will be paying.

Were you able to compare total mortgage costs when you applied for your mortgage, including the interest rate and fees? If not, you could easily have fallen for a deceptively pricey mortgage, despite the interest rate being low.

We recently investigated the sorts of fees that are out there and the amounts being charged, and uncovered big differences between lenders.

A fee for everything

Fees cover all sorts of things including storing your house deeds, making overpayments and even buying your buildings insurance from someone other than your lender – but it’s easy to underestimate their impact.

When we looked at the range of available two-year trackers for someone looking to borrow 50% of their property’s £200,000 value, the difference in the total cost was shocking.

One of the lowest rates for a two-year tracker deal at 50% LTV (loan to value) was from Cheltenham & Gloucester at an eye-catching 1.99%. But this comes with set-up fees of £2,949, including product, application and valuation fees. So, over the two-year tracker period your repayments overall would be £13,360 for a £100,000 mortgage.

Compare this with an equivalent mortgage from First Direct and it’s clear why we should all do our sums. It has a higher interest rate of 2.19% but set-up fees of just £279, so you’d only be paying £10,925 over the two years.

Mortgage fees too complex

The world of ‘additional fees’, which you may have to pay once your mortgage is up and running, is particularly hard to pin down. We found that the number of different fees varies between lenders and there is often no explanation of when or why the fee is levied.

Not surprisingly, the mortgage industry claims its complex fee structures enhance competition, but we think mortgage lenders should present borrowers with the total mortgage cost so they can easily compare deals.

Have you been able to find out easily what fees you may be charged or do you feel that the fees associated with your mortgage could have been explained in a clearer way?

Brian says:
19 March 2012

Our daughter is a first time buyer and “the bank of mum & dad” is helping her buy her house. The mortgage adviser at the estate agent handling the sale has recommended a particular mortgage provide 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, or am I being unfair?