Banks hike mortgage fees for new borrowers

Banks and building societies are increasingly imposing percentage fees on new mortgages, a report has found, causing a headache for borrowers requiring larger loans.

Over the past year, the number of mortgages charging a percentage fee has increased from 43 per cent of the market to 49 per cent, according to the personal finance website MoneyExpert.com.

The average percentage fee comes in at 0.89 per cent. On a typical home loan of £150,000 this equates to a fee of £1,335. However, some charge fees as high as 2.5 per cent adding £3,750 to the typical mortgage.

These fees are particularly onerous for borrowers requiring larger loans. For example, a borrower charged a 2.5 per cent fee on a £500,000 mortgage would be required to to pay £12,500 in set-up fees.Only a small minority (4 per cent) of providers impose a cap on arrangement charges.

A fixed fee is generally better if you have a larger mortgage, but these fees have also increased significantly over the past 12 months. The highest fee has increased from £1,999 to £2,499, with the latter charged by the Bank of Scotland, one of the bailed-out banks.

Richard Morea of L&C Mortgages, a broker, said: “Borrowers need to take the best deal available to them, and this means taking all costs into account, including arrangement fees and valuation costs not just the interest rate on offer.”

It can make sense to favour a deal with a lower fee, even if you will pay a higher interest rate. Alliance & Leicester, for example, offers a two-year deal with a rate of 2.95 per cent and no fee.

HSBC, meanwhile, has introduced a market-leading two year discounted deal with a rate of 1.99 per cent and a fixed fee of £1,199 for up to 60 per cent of the value of a property.

Over ten years, you would be £50 worse off with the HSBC deal on a £100,000 repayment mortgage, according to L&C Mortgages.