Watch out for mortgage arrangement fees in 2008

By MoneyhighStreet Staff. Published on December 31, 2007 This post currently has no comments.

Mortgages house prices

In the excitement of moving into a new home many buyers tend to forget about the hefty arrangement fees that some lenders charge for setting up a mortgage. However, these should be examined carefully before taking out any mortgage as they can add significantly to the overall cost of the loan.

A recent survey by financial information service Moneyfacts indicates that mortgage arrangement fees have gone up 87% in the last two years. They are now averaging about £827 compared to £441 in late 2005. The same survey found that almost a quarter of products do not carry any arrangement fees, so this is good news for the consumer.

However, almost all lenders will charge you some form of arrangement fee, and if they don't you will most likely pay in some other way. In fact, many lenders' arrangement fees are graded. So the better the deal you are getting on the APR and/or flexibility of the mortgage, the higher the arrangement fee is likely to be.

Arrangement fees can be very pricey, ranging from just a few hundred to well over the £1,000 mark. It can be charged as a flat fee or as a percentage of the amount of the mortgage (anything from 0.5% to 3.5%). For this reason it should be one of the first things you look at before applying for a mortgage.

Also be aware of how the arrangement fee on a mortgage is charged. Many lenders will want to add it to your mortgage so that you pay it off over the term of the loan. If so, you will also be paying interest on the fee so ask to pay it off once your application is completed if possible.

Over the past few years lenders were adding high fees to recoup the costs of loans with attractively low APRs. However, the recent rise in the cost of credit and the tightening of lending criteria has changed the landscape somewhat.

As we move into 2008 it will be harder for people to get mortgages and if you do qualify interest rates will not be as low as they were in 2007. However, higher interest rates may prompt lenders to lower arrangement fees. In addition, if you are in a strong financial position with a clean credit rating you should have good bargaining power so shop around for low fees.

In general, when you are shopping around for a mortgage or remortgage product you need to take everything into account - APR, insurance and all fees and charges. Remember that the best deal may not be the one that publishes the lowest APR. All the other fees and charges can add up significantly over the term of the loan. Also, look out for redemption fees and exit fees, especially if you feel you may sell up in the coming years.

If you are a first time buyer remember that the mortgage arrangement fee is just one of the costs associated with getting a mortgage. You will also have to pay mortgage protection insurance, which protects the lender in the event that you cannot repay the loan. This is charged monthly and will be added to your monthly repayment. Your mortgage lender will offer you insurance but this is not necessarily the best deal, and you are not obliged to take this product.

If you are using an independent financial adviser you will also have to pay them. Mortgage brokers normally do not charge fees as they receive commissions from the banks.

Finally, the lender will want your new home surveyed and valued. However, many lenders will cover the cost of this if you ask.

As we move into 2008 there is a good chance that mortgage approvals will steady. However, the beginning of the year at least will be a tough one for borrowers. If possible, offset the current high cost of credit by making sure that you are not caught out by extortionate arrangement fees.

Bookmark With: These icons link to social bookmarking sites where readers can share and discover new web pages.