Homeowners hit with 'unclear' mortgage fees

Homeowners are at risk of paying over the odds for their mortgage due to the vast array of "complex and unclear" fees and charges attached to such deals, according to Which?

The consumer group found more than 40 different names for fees and charges across the market, including "administration fees", "application fees", "assessment fees", "arrangement fees", "booking fees", "product fees", "reservation fees", "lenders' fees", "completion fees" and "mortgage questionnaire fees".

It said that since 2009, the year the Bank of England base rate fell to its historic 0.5% low, the average arrangement fee cost has almost doubled, from £878 to £1,588.

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Which? is calling for Chancellor George Osborne to use his forthcoming Autumn Statement to make it easier for people to find the best mortgage deal by making overall costs clearer.

The consumer group, which is running a "stop sneaky fees and charges" campaign to put an end to confusing and hard-to-compare charges across the financial sector, said the range of fees attached to mortgages make it hard for borrowers to compare the total cost with other deals.

Its research had found that, for example, someone borrowing £100,000 over two years could potentially save around £1,500 if they took the full set-up fees into account rather than just concentrating on the deal with the lowest rate.

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Which? said lenders will often use different names for similar types of fee - for example a booking fee can also go under the name of a reservation fee or an application fee.

It also found a wide variation between lenders in the cost of the same fees, which it said suggests that fees do not always reflect the true cost incurred by the lender.

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A survey of more than 2,000 people by Which? found that just one in 33 (3%) consumers could correctly rank the cost of five two-year fixed-rate mortgage deals when they were displayed using typical information, including the APR (annual percentage rate).

But this increased to more than one third (36%) of people who could correctly rank the deals when they were presented in a way which reflected their total costs over 24 months.

Which? said that with mortgage repayments being the biggest monthly expense for most homeowners, and with expectations that interest rates will rise at some point next year, the Chancellor should use his Autumn Statement to make it easier for people to find the best mortgage deal, working with regulators, the industry and consumer groups.

Executive director of Which? Richard Lloyd said: "Homeowners could be paying over the odds for their mortgage because of the complex range of fees and charges that prevent them from finding the best deal.

"The Chancellor must act now to stop sneaky fees and charges and end mortgage confusion for consumers.

"The Government and the regulator should also explore better ways of presenting the total cost of mortgages."

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The call comes at a time when mortgage lenders have been slashing their rates in a bid to attract borrowers and keep their existing ones as they look to meet end-of-year targets.

Financial information website Moneyfacts reported last week the number of fixed-rate mortgages on the market has increased by 12.5% since the start of September.

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Moneyfacts suggested lenders are being driven to improve their rates as they anticipate there will be a flurry of people looking to move off their standard variable rate (SVR) and onto a fixed deal in order to protect themselves against interest rates rising.

The base rate is expected to start rising at some point next year, pushing up borrowing costs.

A Treasury spokesperson said: "The Government is committed to increasing competition in the mortgage market and making it simpler for customers so they can choose the mortgage that's right for them.

"That's why we created a new, dedicated consumer regulator, the Financial Conduct Authority, to ensure mortgage lenders are properly regulated and customers are protected when making such an important financial decision.

"We have also consistently demonstrated our commitment to making the aspiration of home ownership a reality for as many households as possible through initiatives such as Help to Buy. Currently, over 50,000 people have bought a home through the Help to Buy scheme."

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