Money News
Latest data from financial information provider, Moneyfacts.co.uk, shows that although many mortgage lenders have now increased their standard variable rates, revised their mortgage ranges and increased their tracker products following the November base rate rise, a number have also increased arrangement fees.
According to Scott Hanton, mortgage analyst at Moneyfacts, 11 major mortgage providers, including Abbey, Nationwide and Northern Rock, which all sit within the top five mortgage lenders (based on CML statistics), have increased their arrangement fees by as much as £200, switched to percentage based fees or introduced fees on products which were previously fee free.
"With all the commotion in the mortgage market following the base rate rise, lenders may be taking this time of uncertainty to pass on fee rises in an attempt to make them go unnoticed as consumers focus on their interest rates," he notes.
Abbey, for example, has upped arrangement fees on its 2 and 5-year fixed rate mortgage deals by £100. Meanwhile, selected fees went up by £100 over at Nationwide while Northern Rock and the Progressive BS applied a £100 hike across the board.
Portman BS, on the other hand, raised the fee on its 3 year fixed rate offer by £100 (£200 for its 5-year fix) and Alliance & Leicester raised the fee on its 5-year discounted rate deal by £50, and by £200 for its 2-year fixed rate offer.
Over at Britannia, all remortgage products now have a £399 fee - previously they were fee free.
The recent increases come despite the fact that given the automated systems available the timing and cost of processing a mortgage should be greatly reduced.
To remain the top rate provider, however, lenders often need to offer very low headline rates, sometimes below the cost of funds. Many of the examples above include 'best buy' deals, so it's clear that the lenders may use fee income to substitute or bolster interest income. However, by using fees to counter lower rates, it makes the comparison process for the consumer much more complex.
To find the best deal, it's no longer sufficient to look at the interest rate; borrowers must consider the upfront arrangement fees, exit fees, higher lending charges, incentives and redemption clauses, to name just a few factors.
"Not only has the mortgage selection process become more complex, it is also now very costly, particularly for consumers opting for short term deals. The increased cost of fees can make these deals uneconomical," Hanton says.
08 December 2006 © Moneyextra.com
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