Application fees smother good deals

Borrowers considering set term fixed-rate mortgages should be aware that application fees can negate the value of the offer period, experts claimed.

Moneysupermarket.com revealed that mortgages with more attractive looking rates, but higher application fees, could actually cost the borrower money.

Application fees have almost doubled over the last three years and, in some cases, it could take up to 17 months just to repay the application fee.

The comparison website demonstrated that on a Northern Rock £150,000 two-year fixed- rate mortgage with a £5,250 application fee, the borrower would spend most of the deal paying off the fee while making minimal inroads into paying the actual debt.

By contrast, somebody taking out a two-year fixed-deal mortgage with Abbey would have re-paid the application fee in four months, after which they would be paying off the mortgage.

Over the two years, despite making smaller monthly repayments on the Northern Rock account, the consumer would be better off by £2,082 with the Abbey account.

Louise Cuming, head of mortgages at moneysupermarket.com, said: "I would urge anyone who can afford to do so to pay the application fee up front, or as quickly as possible within the product terms by making overpayments.

"Borrowers need to remember that not only will the fee take time to pay off, but it will also be subject to interest."