The fees charged for taking out a mortgage are on the rise, new research has revealed.
According to Moneyfacts.co.uk, low interest rates and government schemes designed to encourage buyers and help first-time buyers have made the UK mortgage market a competitive place – which is great news if you’re looking for a mortgage. However, an increase in the number of low-rate deals means that the up-front costs customers are charged for these are going up.
So, how should you navigate these changes if you’re looking for a mortgage?
Fees vs rates
The new figures show that the average mortgage fee now stands at £967, compared to £927 just six months ago. This means that you should factor nearly £1,000 more into your moving house budget.
This isn’t small change, so how do you decide whether the fee is worth it? Well, it’s usually the mortgages with the best interest rates that have the highest fees – although this isn’t always the case. So, you need to get out your calculator and work out whether the lower interest rate you’re paying will mean you’ll recoup the fees you were charged, or whether the fees are so high it’s not worth the lower interest rate.
Of course, even if the interest rate remains favourable after you’ve weighed it up, this mortgage might still be out of your reach if the fees are too steep. Moving house costs a lot, even when you don’t count the cost of the house itself. Mortgage fees – usually made up of an application fee, valuation fee and Higher Lending Charge (the latter only if you’re borrowing a substantial portion of the property’s value) – can cost thousands.
In addition to these fees, you’ll also need to pay your Stamp Duty, solicitors fees and for any moving costs. You therefore need to have a generous pot of cash to cover all these expenses – and a high mortgage fee might be out of your budget when you add everything together.
Should I fix?
The Moneyfacts.co.uk research found that there has been an even steeper rise in the fees for fixed-rate mortgages. Today, the average fee for this type of mortgage is £975, compared to £935 six months ago.
One of the key advantages of a fixed-rate mortgage is that you know exactly how much you’ll pay each month for the entire term of your mortgage. It doesn’t matter if interest rates go up – your mortgage payment will stay the same. Although, of course, if interest rates go down you won’t get the benefit.
Because interest rates are currently so low – the Bank of England base rate is 0.5 per cent - it’s fair to say that the only way for them to go is up. This means that you might decide you’d like to fix before they do. When you’re working out whether it’s worth the fee for the mortgage, you should consider the security that fixing gives you, as you may decide it’s worth the fee to get this.
You can find out more about fixed-rate mortgages, their advantages and disadvantages here, and for all the latest mortgage news, keep checking the blog.
Disclaimer: All information and links are correct at the time of publishing.