Homeowners could be losing out from a growing lender trend towards high fees and low rates, brokers say, as the average fixed mortgage fee topped £1,000 last week.
Experts say the trend can make it more complicated for consumers to work out which mortgages are best for them, especially in the case of product transfers or direct sales because some focus on the low rate and not the fee.
The Financial Conduct Authority is looking into the issue, as well as consumer reliance on best-buy tables, as part of its ongoing competition review.
Moneyfacts finance expert Charlotte Nelson says: “Those savvy borrowers heeding the advice to remortgage could find that moving deals can be a costly affair, especially if their preference is for shorter-term fixed rates. Therefore, with fees on the rise, it is more important than ever for borrowers to consider the true cost of a mortgage before obtaining a deal.”
Your Mortgage Decisions director Dominik Lipnicki says: “Too many clients are driven just by rate, which I suppose is what the lenders want. At one point, fees were £200 or £300, and now it’s not unusual for them to be £2,000.”
John Charcol senior technical director Ray Boulger says: “The danger is that, if consumers don’t get advice, they may be tempted by a lower rate with a high fee.”
Boulger adds that, when John Charcol ran an online execution-only service, around 20 per cent of clients chose loans that were “mathematically less attractive” because they did not properly account for the combination of rates and fees.
But the move towards advised sales following the Mortgage Credit Directive negates most risk, Boulger says.
He adds: “On the basis that all consumers have to have advice, except on product transfers, for purchase and remortgage business, there is less danger of consumers getting the wrong product.”
Other intermediaries agree.
Lipnicki adds: “That’s where our role as advisers comes in: to look at the bigger picture, to help clients see past the rate or the fee alone.”
Chadney Bulgin mortgage partner Jonathan Clarke says high fees are becoming more common but many lenders offer similar fee-free loans at higher rates.
He adds: “However, it’s really not difficult for an adviser to recommend the most cost-effective product based on the total cost over the initial fixed- or tracker-rate period. Accurate mortgage sourcing software quickly and easily does this for you, allowing the customer to benefit from the best possible overall deal.”
Yorkshire Building Society and Leeds Building Society, which have several high-fee, low-rate loans on the market, say these products have a place. Yorkshire Building Society senior mortgage manager James Farrow says the products are helpful for those wanting to borrow larger amounts.
He says: “A general rule of thumb is that borrowers seeking a larger mortgage will pay less overall by opting for a higher-fee product with a lower rate, and those wanting smaller loan sizes will be better off overall paying a higher rate and a smaller fee.”
He points out that his lender’s mortgage advisers explain the fees and rates to consumers, and that only 32 of the firm’s 215 residential loans have fees of more than £999.
Leeds Building Society director of product and distribution Jaedon Green says: “This type of mortgage is part of a range of products designed to provide flexibility and lifestyle choices in an advised market, as well as to help people have the home they want. It can help households budget and can be beneficial for borrowers with larger loans, where the fee as a percentage of the loan is relatively small.”
The last time fixed-rate fees rose above £1,000 was four years ago, according to Moneyfacts.