It is always good to report when something that will help people to buy a home hits the streets. This time it is the mortgage industry scrapping arrangement fees on some of the products that they offer.
In a bid to boost the housing market and give a leg up to estate agents, the mortgage industry has now scrapped arrangement fees on 40% of their products. Moneyfacts, who are an independent monitor of the mortgage market, revealed this figure recently.
What did the Moneyfacts Research reveal?
Moneyfacts revealed that back in July 2016 there were only 1270 mortgage products that had no arrangement fee. A year later the number of arrangement fee free mortgage products had climbed to 1709.
And as of now the number of arrangement fee free mortgage products is at 2007. This means that four out of ten mortgage products available today do not charge an arrangement fee. From the beginning of 2018 the number of mortgage products without arrangement fees has risen by 274.
Charlotte Nelson, a Moneyfacts finance expert, stated that mortgage lenders are looking at different ways to compete other than just the headline rate. The truth is that providers have kept rates pretty static as they await the decision on the base rate increase.
Nelson felt that some lenders were showing good initiative by removing their arrangement fees and that this was a good way to remain competitive in the market. The public would welcome any reduction in home buying costs.
Arrangement Fee rates on the Remaining 60% Likely to Increase
While it is great news that 40% of the available mortgage products do not have an arrangement fee this still leaves a sizeable 60% of mortgage products that still have them. And the word on the street is that the cost of these fees is set to rise.
The evidence is out there that arrangement fees are going up. In March 2018 the average cost of an arrangement fee was £979. In July 2018 the average arrangement fee cost has risen to £990. This seems ludicrous when 40% of mortgage products have scrapped arrangement fees altogether.
Look at all the Options to get the Best Deal
The reason that many mortgage products now have higher arrangement fees is because the lenders are looking at ways to claw back revenue that they lose by offering cheap deals. Our advice to borrowers is to look at the complete picture and not just focus on the cheapest deals because you could end up paying more over the longer term.
Here is an example. Let’s assume a borrower goes for the lowest rate two year fixed deal that they can find on a 75% loan to property value basis. Over time the borrower would in fact be worse off to the tune of £1,131.80 than if they had chosen a mortgage product that offered the best deal with no arrangement fee.
You need to look at all of the numbers because fees can really stack up. A lot of borrowers will remortgage a number of times and this means paying even more fees. So think longer term and check out the no arrangement fee mortgage products and compare everything.