Mortgage application fees 'have increased rapidly'
Published On 19 March 2007
People are having to pay more to borrow money to purchase their home, according to new research published by a leading consumer website.The data - which was gathered by independent financial product research firm Defaqto, on behalf of find.co.uk - shows that the average mortgage application fee has nearly doubled since 2004.
On average, people now have to pay a fixed fee of £611 on any fixed-rate mortgage they want to take out. In 2004, the average fee was only £334.
According to the data, the range of fees charged by lenders has also increased in the last two years. In 2004, the lowest application fee available to consumers was £149 and the most expensive was £2,500.
Now, however, the cheapest fee that a potential borrower could find is £49 - on a Halifax two year fixed-rate mortgage. The highest fees are still in the region of £2,500 and are charged by the Bank of Scotland on its two year fixed-rates at 5.49 per cent and 5.60 per cent.
The website also warned that other lenders are disguising the true cost of their application fees, by charging a percentage of the total mortgage amount borrowed. For example, Northern Rock's two year flexi, fixed-rate mortgage at 3.99 per cent might appear attractive. However, its application fee of 3.5 per cent of the loan amount means that consumers could be paying £10,500 to borrow £300,000.
"Consumers need to not only take account of the headline mortgage rate, but also the application fee at the outset. If you have a small mortgage, the application fee will effectively boost the true cost quite considerably, whereas if you have a large mortgage, a fixed application fee is potentially a lot less," explained David Black, the head of banking at Defaqto.
"Also beware that lenders can manipulate their positions in best buy tables. These tables are generally based on mortgage interest rates only. So by increasing application fees and not the interest rates, lenders effectively increase the true cost of the mortgage."
Kate Marsden, the marketing director of Find.co.uk, added that consumers need "to do their sums to calculate the total cost of a mortgage". She explained that consumers should realise that, by shopping around for a competitive mortgage deal, they could be saving money which they could subsequently use as a "redecorating fund".
Recent data from Halifax revealed that people are likely to have to take out larger mortgages if they hope to purchase a detached home.
According to the lender, the average cost of a detached home in the UK now exceeds £325,000 pounds. Homes in the south-east of the UK in general, and in London in particular, were revealed to be even more expensive.
A detached home in the UK's capital now costs an average of £697,625, compared to £392,135 only five years ago.
