Mortar mess

Last week saw mortgage holders breathe a collective sigh of relief as the Bank of England dropped the base rate from 5.75% to 5.5%. This decision will make monthly outgoings on the mortgage that bit more affordable. For those people considering taking out a mortgage or thinking about a re-mortgaging however the issue of application fees has never been more prominent. In 2002, a Halifax mortgage with a rate of 3.99% on a £150,000 mortgage came with a £299 fee, today the fee is a staggering £4,500 on a much higher rate of 5.29%.

House not fee

If like most people you would rather be paying off the loan on your house rather than the start up fees for your mortgage there are a number of things to consider.

Small is beautiful

Bigger is normally thought to be better, but when it comes to mortgage lenders, it’s often the case that the smaller they are the greater the value they provided to the customer.

On a variable mortgage of £150,000, Newbury Building Society, Beverley Building Society and Holmesdale Building Society all come out on top of the big names in mortgage lending such as Nationwide and Cheltenham and Gloucester.

The same is true looking at fixed rate deals. The Coventry Building Society can offer 2 years at 6.39% with a start up fee of £0, the total cost over two years works out £23,837. Nationwide, one of the nation’s biggest lenders best offer on a 2 year fix is at a rate of 6.25% but with a start up fee of £340. The total cost of the Nationwide deal works out at £24,088, an additional £251.

It all adds up

The differences on rates and fees may sound relatively small but borrowers need to consider the fact that they are dealing with large sums of money. A recent report on the UK mortgage market revealed that on a five-year fixed rate deal, a difference of 1% could cost borrowers as much as a £4,000 difference to the total sum repaid.

Keep lenders happy with a deposit

If you’re able to prove to lenders that you’ve managed to save a significant deposit already then they will be far more likely to give you a mortgage with a great rate. To borrow £200,000 for a £250,000 property from a modest income will be difficult with only a handful of lenders willing to take you on. Northern Rock for example will offer you a three year fixed deal at 7.59% with a start up fee of £555. The total cost of this mortgage over 3 years would be a huge £54,214.

If however you had a large deposit and only required to borrow £75,000 then the difference is striking. On the same property, Giraffe will offer you an introductory rate of 5.82% with zero start up fees. The cost of this mortgage over three years works out at £17,329.

Deal of the year

With New Year fast approaching it’s well worth reviewing your current mortgage deal, particularly if it is due to expire at some point in 2008. Don’t fall into the trap of letting the rate you repay the mortgage move onto the Standard Variable Rate if you can find a better deal. Shopping around could save you thousands over the course of just a few years. Don’t just take the first thing your current lender offers you, think about choosing a smaller lender and if you’re buying for the first time be sure to approach lenders with as big a deposit as possible. The deal you’ll get will be reflected in the monthly cost.

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