Brendan Gilligan, product manager at Yorkshire Building Society, says fee-free deals make it easier for borrowers with a smaller deposit to get on or move up the property ladder.
He says: “Lenders choose to offer fee-free mortgages to give borrowers the greatest range of options possible and help more people buy their homes they aspire to.
“Some of these mortgages come with cashback to help buyers even further.”
But Ray Boulger, senior technical manager of John Charcol, says the downside with this type of mortgage is, as there is no arrangement fee, the lack of this income for the lender means the interest rate will be higher than for a similar mortgage with an arrangement fee.
He says there is also a risk that a borrower may think they are getting a cheaper deal when in fact they could find themselves paying less in the long-run by going for a mortgage with fees attached and a lower rate.
Mr Boulger says: “Borrowers are naturally attracted by a mortgage marketed as fee-free and, if they don’t get independent advice, may apply for such a mortgage even when an alternative with a fee but a cheaper rate might have offered better value.”
In order for mortgage advisers to meet their regulatory requirements it is vital they strip out their client’s bias and make sure they come away with a true picture of the costs and responsibilities they are taking on with any type of home loan.
The section of this guide titled Calculating if fee-free is best offers more details on how to calculate whether a client will be better off with this type of mortgage.
