Should borrowers consider fee-free mortgages?

Should borrowers consider fee-free mortgages?

The mortgage market can be a bit of a minefield. There are currently over 3,500 deals out there for borrowers to choose from, which can cause confusion and uncertainty over which option is best

New research from Moneyfacts.co.uk, however, has revealed that the proportion of deals without an arrangement fee has risen substantially – by 738 deals in two years. This means that those searching for a mortgage might now find it easier to find a cost-effective deal.

The number of fee-free mortgages available five years ago stood at just 394. Even two years ago it was only 544. A year ago the number had risen to 1,086, six months ago it was 1,226 and as of today it is over 1,200.

While borrowers have benefitted recently from historically low rates, the mortgage market is now home to the largest number of fee free deals it’s ever seen.

Lenders, in an effort to lure borrowers in, have been trying to compete in other ways than the traditional headline rates.

According to Charlotte Nelson, Finance Expert at Moneyfacts.co.uk, borrowers who ignore the fee free mortgages could be making a costly error.

The average mortgage fee has grown by £53 in the last year to stand at £975 presently.

“Unfortunately, getting the lowest rate possible is still the main focus of many borrowers,” Nelson said. “However, many of these low-rate deals are often accompanied by a hefty free, which in some cases can work out to be more expensive than the no-fee alternative.”

Based on the lowest rates available at 75% loan-to-value (LTV), borrowers plumping for the lowest fee-free deal would be £1,085.60 better off than opting for the lowest rate on the market.

“The use of arrangement fees allows lenders to offer more choice within a range, however the administration costs do not vary greatly between deals, and with some fees over £2,000, many question what exactly this is for,” Nelson continues.

“In today’s market, borrowers are being told to switch deals once their fixed rate comes to an end. However, deals with fees can make switching mortgages a costly affair, particularly for borrowers who opt for a shorter-term mortgage. Therefore, borrowers would be wise to look at the true cost of the mortgage and to take into account any fees, to ensure the most cost-effective deal is obtained.”

The mortgage world can be a confusing old place, with a range of different mortgage products and types available. Fixed-rate, tracker, interest-only, variable; LTV, interest rates, remortgaging, equity, negative equity, etc, etc – much of the jargon surrounding mortgages can leave borrowers feeling alienated.

This is where the advice of an estate agent will come into play, guiding you through the process in a professional and efficient manner, taking into account changing trends and the ever-evolving face of the mortgage market.

The research above, however, shows that fee-free mortgages should definitely be considered – borrowers who ignore them could well regret doing so in the future.