Big rise in fee free mortgages

Around one-third of the 3,500 or so mortgage deals currently on the market are now offered without an arrangement fee

Around one-third of the 3,500 or so mortgage deals currently on the market are now offered without an arrangement fee, according to research from Moneyfacts.co.uk.

The study revealed that the number of deals without an arrangement fee has increased significantly, by 738 deals in just two years, to 1,282 deals this week.

“Borrowers have benefited from some of the lowest rates on the market, but the mortgage market now also boasts the largest number of fee free deals to date, with lenders trying to compete in other ways than the traditional headline rates,” said Charlotte Nelson, finance expert at Moneyfacts.co.uk.

With the average mortgage fee having increased by £53 in just one year to stand at £975 today, ignoring the fee free options could be a costly mistake, according to Nelson.

She continued: “Unfortunately, getting the lowest rate possible is still the main focus of many borrowers. However, many of these low-rate deals are often accompanied by a hefty free, which in some cases can work out to be more expensive than the no-fee alternative.

“For example, based on the lowest rates available at 75% loan-to-value, opting for the lowest deal without a fee would make a borrower £1,085.60 better off than just opting for the lowest deal in the market.”

The use of arrangement fees allows lenders to offer more choice within a range, however the administration costs do not vary greatly between deals, and with some fees costing £2,000, many question what exactly this is for.

“In today’s market, borrowers are being told to switch deals once their fixed rate comes to an end. However, deals with fees can make switching mortgages a costly affair, particularly for borrowers who opt for a shorter-term mortgage. Therefore, borrowers would be wise to look at the true cost of the mortgage and to take into account any fees, to ensure the most cost-effective deal is obtained,” Nelson added.

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