Arrangement Fees Go Through The Roof

Financial information website Moneyfacts says that mortgage arrangement fees have nearly doubled in the past two years. These up-front fees have gone up from an average of £441 in November 2005 to £827 now.

As banks become ever-more desperate for cash they have increased these fees partly to recover income which they have been forced to forfeit through reduced charges in the last two years and high mortgage exit fees earlier this year.

Northern Rock has the highest current arrangement fee at 3.5% - as if consumers didn’t have enough reasons to avoid the ailing bank.

Deals are becoming more complicated with rising fees as these are not always the worst deals.

David Knight of Moneyfacts said: “The increase in fees may not automatically mean that the cost of the deals has increased. What it does mean is the maze which borrowers need to navigate to get the best deal has become more complicated. Unfortunately too many borrowers still focus their initial attention on getting the best rate, without taking full consideration of the true cost of the deal.”

Some months ago Halifax was taken to task by two Liberal Democrat MPs who accused the bank of trying to trick customers into a deal with a low initial rate, but a high arrangement fee. The Halifax mortgage had an interest rate of just 1.99%, but an arrangement fee of £1,999.

However, Moneyfacts say that 24% of mortgages on offer – currently around 6,000 – have no arrangement fee at all.

The latest trend is for lenders to charge an arrangement fee percentage rather than a flat fee. If you took out a £250,000 mortgage with Northern Rock at 3.5% your arrangement fee would be a staggering £8,750. A mortgage of £286,000 would take your mortgage arrangement fee into five figures. An average detached house now costs £343,000.

Market research organisation Mintel commented that the high arrangement fees will hit hard home owners who see their current mortgage deals expire in the next year or two.