Mortgage application fees have doubled, finds research

Mortgage application fees have nearly doubled in the last three years, says research from consumer finance portal Find.co.uk. An analysis of the mortgage data from financial product research firm Defaqto has revealed that in 2004 fixed mortgage application fees were between £149 and £2,500, giving an average fee of £334. That average has now risen to £611. The range between the top and bottom fees has also widened, from £49 at the bottom end to £2,499 at the top end.

Fees that are charged on large loans could be even higher if they work on a percentage basis. One seemingly competitive mortgage deal carries a fee of 3.5 per cent of the loan, so if you borrowed £300,000 you’d be looking at a massive fee of £10,500. And since fees are often added to loans, borrowers pay interest on the fees too.

Defaqto’s advice is to look beyond the headline mortgage rate and look at the application fee as well. With a small mortgage, the application fee can make the true cost high. This is less likely to be the case with a larger loan. Defaqto’s head of banking David Black warns: ‘Beware that lenders can manipulate their positions in best buy tables. These tables are generally based on mortgage interest rates only. So by increasing application fees and not the interest rates, lenders effectively increase the true cost of the mortgage.’

Fees are charged in different ways, with some providers charging fixed fees, others variable rates and still others a percentage of the loan. This can make it very difficult for borrowers to compare the true cost of a mortgage.

Kate Marsden, Marketing Director of Find.co.uk, added: ‘Borrowers need to do their sums to calculate the total cost of a mortgage, including all fees, so they can compare like with like when assessing different deals. After all, that upfront mortgage application fee could be your redecorating fund!’