Instead, the study found fees on mortgage products have risen 20% since 2009, raising the question of whether mortgages really are becoming more affordable – or if market commentators need to switch their attention from rates to rising fees.
For this weeks’ Marketwatch, our commentators are:
SPF Private Clients chief executive Mark Harris, who says brokers need to encourage borrowers to look beyond the headline rate and check fees
Accord Mortgages product manager Jemma Smith, who says the overall cost of a mortgage is the lowest it has been in years
Which? Mortgage Advisers managing director Mike Lawton, who says low rate high fee products still offer some customers a good deal
Mark Harris, chief executive, SPF Private Clients
There are many complaints about lenders’ arrangement fees being too high but it is important to regard fees as an integral part of the pricing of a mortgage product – indeed, as crucial as the rate.
If the intention is to top the ‘best buy’ tables in order to generate business and press coverage, then chances are the fee will have to be pretty hefty in order to enable the lender to do so, particularly in this ultra-competitive market.
The good news is that this mortgage rate price war is generating an interest in remortgaging that has not been there for years but borrowers are at risk of tripping up over large fees.
If a borrower only looks at the headline rate when choosing a product, then they are only looking at part of the picture. The crucial message that brokers need to convey is that you must look at the total cost – rate plus fees – when comparing products. And also that it is important to compare products; not simply assume that the mortgage with the cheapest rate is the right product for you.
It is a shame that lenders are charging hefty fees and also that there is such variety as it makes it more difficult for borrowers to compare products. Clearly, this makes the role of the broker even more important in assisting with this task.
Jemma Smith, product manager, Accord Mortgages
While the industry average application fee may well have risen over the past few months, there remains a huge variety of lower fee mortgages available and the overall cost of taking out a mortgage is lower than it has been for years.
Application fees are clearly set out and explained to borrowers as part of the application process, including supplying borrowers with a Key Facts Illustration which details all the different fees which may be payable.
In creating their product range, lenders like Accord seek to offer mortgages for a range of different borrowers. And just as we provide options at a variety of loan-to-value levels, so we give options at a variety of fee levels.
Our key aim is to ensure we offer competitive mortgages for all customers, whether their loan size is large or small, and whether they are paying a larger or smaller fee.
We shouldn’t forget as well that for those who perhaps are unable to pay a larger fee, we provide other support such as cashback on completion or valuation assistance to reduce the short-term costs they face.
Mike Lawton, managing director, Which? Mortgage Advisers
For some customers low rate deals will offer good value, even with a higher fee, although this is always subject to an individual’s personal circumstances. Someone borrowing a large amount will probably be better off opting for a high fee in return for a low rate. We are seeing competitive rates on five year, and even 10-year fixed rates, where consumers can afford to pay more in fees to secure a good rate in the long term.
Lenders are using fees to control their pricing whilst increasing their range of rates. By introducing mortgages with low rates, but relatively high fees they can ensure they still make a decent return.
The lowest rates have, so far, only been available to customers with large deposits. As competition at this end of the market heats up, it will be interesting to see if fees begin to drop as well as rates.
The number of people remortgaging remains lower than we might have expected, but it is increasing as people realise there are plenty of good deals out there. An increasingly significant number of people are opting to take out a personal loan against their home, instead of remortgaging. But if rates start coming down for those with smaller deposits as well this will encourage more people to switch.
