Fixed Rate  

Average fixed-rate mortgage fee hits four-year high

Average fixed-rate mortgage fee hits four-year high

The average fee for a fixed-rate mortgage has sailed past the £1,000 mark for the first time in four years.

Consumers taking out a fixed-rate product now face an average fee of £1,018 – up from £986 in 2016, according to Moneyfacts.

It is the first time the figure has risen above the £1,000 mark since August 2013, when it was £1,005.

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Fees on some of the most competitive products can be as much as £2,000, with the highest on the market – a deal for professionals only - standing at a whopping £4,000. 

Brokers have taken aim at product fees in the past, with some suggesting they are unnecessary add-ons – particular when it comes to smaller loans.

Some deals give the borrower the option of adding the fee on to the mortgage advance, but doing so can push up the cost of monthly repayments.

Charlotte Nelson, finance expert at moneyfacts.co.uk, said fees have climbed so high in order to compensate for record low interest rates.

“These larger fees mean that the new lower rate mortgage deals on the market might not be as cost-effective as their headline-grabbing rates might suggest,” she added.

“For example, opting for the lowest two-year fixed rate mortgage at 60 per cent loan-to-value with no fee - currently Skipton Building Society’s 1.48 per cent deal - will see borrowers £1,088.61 better off in the first year compared with the lowest overall rate, which comes with an above-average fee of £1,495. 

“The extra saved by opting for a deal with no fee could be better used to overpay the mortgage, which could help borrowers become mortgage-free quicker.”

Matthew Harris, director at Edinburgh-based Harris Independent Financial Advice, said he did not think fees were too high but urged caution on the part of the consumer.

He added: “It is very common for online best-buy tables that are sold to consumers to only really focus on the interest rate. Lenders know that.

“While a broker will always find the lowest-cost product when fees are taken into account, the consumer table will only focus on the interest rate. The lenders are in a rush to show the lowest rate possible, and they use a high fee to offset that. They do that because it gets them headlines.

“Quite often, we recommend a product and customers come back and say ‘we have seen a lower rate from another lender – why don’t we go for that?’ Once we explain to them it is less attractive, they are generally happy with that.”

simon.allin@ft.com