Before you apply for a home loan, check the small print for fees. Our exclusive research has found fees of up to £3,000!
When most of us search for a new mortgage, or shop around for a remortgage, we tend to concentrate on headline rates of interest.
However, although the interest rate (and how interest is charged, such as fixed, discounted, capped or tracker rates) is the primary concern of mortgage borrowers, you need to look beyond mouth-watering rates of interest. Indeed, as I warned in Beware Of The Nasty 99s, mortgage lenders manipulate their rates in order to take advantage of our tendency to round down to the nearest digit. Hence, a remarkable number of mortgage rates are to be found at the .99% and .49% marks!
In addition, more and more mortgage lenders are chopping their interest rates in order to make them appear more attractive (and to leap into the Best Buy tables), and then recouping their money by charging hefty fees to borrowers. I was keen to investigate this strong trend towards higher mortgage fees, so I asked independent financial researcher Moneyfacts (which powers the Fool's search engines for credit cards, personal loans, savings accounts, etc.) to search its database of over eight thousand different home loans.
Initially, I asked Moneyfacts to supply me with the details of all mortgages with arrangement, booking, completion or reservation fees which exceed £499. However, this search produced a list of almost 250 mortgages, which was too big a sample for my needs! Hence, I restricted my search to loans with fees which exceed £999.
It's important to note that mortgage fees can be divided into two types: flat fees and percentage fees. With percentage fees, the larger the loan, the larger the fee, so I decided to base these on a mortgage of £120,000, in order to see how they compare. Here's what I found:
Flat fees over £999 (19 loans identified)
The following table shows all nineteen loans which levy a flat fee that exceeds £999:
Fee (£) | Lender/Broker |
|---|---|
2,499 | John Charcol |
1,999 | Alliance & Leicester |
1,598 | Nationwide BS |
1,500 | Co-operative Bank |
1,499 | Bank of Scotland Mortgages |
1,495 | Woolwich |
1,250 | GHL Group |
1,195 | Northern Rock |
1,149 | Intelligent Finance |
1,099 | Cheltenham & Gloucester |
As you can see, the above table includes a number of leading mortgage lenders/brokers, plus several lesser-known firms which specialise in lending to people with poor credit histories or low incomes (known as the impaired-credit market). The most popular flat fee is £1,499: nine of the nineteen loans (almost half of the total) charged this sum.
Percentage-based fees (44 loans identified)
Percentage | Fee for | Lender/broker |
|---|---|---|
2.50 | 3,000 | Northern Rock |
2.00 | 2,400 | Bradford & Bingley |
1.99 | 2,388 | SPML |
1.95 | 2,340 | Future Mortgages |
1.55 | 1,890 | Future Mortgages |
1.50 | 1,800 | Fifteen loans in total |
1.30 | 1,560 | Accord Mortgages |
1.25 | 1,500 | Five loans in total |
1.20 | 1,440 | Future Mortgages |
1.00 | 1,200 | Sixteen loans in total |
Even more so than the previous table, this table is dominated by impaired-credit, sub-prime or adverse-credit loans. As you can see, the most popular fees are 1% (sixteen loans) and 1.5% (fifteen loans), which means forking out a four-figure fee on a six-figure mortgage. Northern Rock's set-up fee of 2.5% is the highest that I've ever seen for a mainstream mortgage, and adds up to three grand on a £120,000 loan (and £5,000 on a £200,000 loan). Ouch!
In summary, beware of rock-bottom mortgage interest rates. Be sure to check carefully for any additional fees, and add up all the costs before choosing your perfect mortgage. Otherwise, you could be caught out and lose hundreds (even thousands) of pounds as a result.
Finally, if you'd like an expert to do all the searching and the paperwork for you, try the Fool's mortgage service. It's run by award-winning mortgage broker London & Country Mortgages, which searches the whole of the market to find you the perfect home loan, but doesn't charge you a fee for its expertise!
More: Use the Fool to compare mortgages!