- Application fees can cost thousands
The number of mortgages with uncapped upfront fees has skyrocketed over the past year, according to MoneyExpert.com.
The independent financial comparison website says in November last year only 110 different mortgage products* came with an uncapped application fee which was dependent on the amount you borrowed. But in the past 12 months that figure has grown almost fivefold to 506.
And MoneyExpert.com is warning homeowners and first time buyers to expect highly inflated application fees for as long as uncertainty in the housing market remains. Lenders typically charge between one and two per cent of your total loan, although fees of over three per cent do exist.
The website says the cost of capped upfront fees has also increased by around 63 per cent. Last November the average application fee was £509 but this has since grown to a typical £834.
But it is the cost of uncapped charges that MoneyExpert.com believes homeowners should be wary of. Application fees can be as high as 3.25 per cent of the value of your loan.
On the current average mortgage of £152,300** a three per cent fee would be a hefty £4,569. But on a £343,000 mortgage – the average cost of a detached house in the UK*** – the same charge would require the applicant to fork out £10,290.
Sean Gardner, Chief Executive of MoneyExpert.com, said: "The rate at which banks and building societies are increasing the cost of their fees or switching to uncapped fees is alarming."
"Borrowers need to look carefully at mortgage deals and not just focus on the interest rate. What might look like a good deal will soon become a bad deal once fees are taken into account."
According to MoneyExpert.com there are over 2,300 different fixed and variable mortgage deals on the market catering for everyone from graduates to sub-prime borrowers and self employed people.
Sean Gardner added: "Mortgage application fees are nothing new but lenders often won’t publicise a change to their fee structures, meaning some homeowners could be unaware of this huge shift to uncapped charges.
"Anyone who is unsure about how application fees can affect them should firstly work out how much they can afford and secondly enquire about whether the fees can be tagged onto the overall loan. In many cases there are ways to make ends meet but some buyers will be caught out."
Previously MoneyExpert.com research showed that more than 738,000**** applicants have been turned down by mortgage firms in the six months to October as banks and building societies enforce stricter lending conditions. The figures showed that the number of mortgage application rejections had risen by some 60 per cent since March.
* Research conducted using MoneyExpert.com whole-market analysis. Data refers to variable, tracker and fixed rate mortgages
** £152,300 current average mortgage according to British Bankers Association
*** Halifax House Price Index
**** TNS interviewed 1,009 GB adults online between October 2nd and October 4th 2007. Previously YouGov conducted same research between 21st and 23rd March 2007.