The Finance Blog

Borrowers who are intent on finding the most competitive fixed rate mortgage would do well to watch out for excessive arrangement fees being added to the loan. Many eye-catching fixed rate mortgages will often have attached astronomical fees that are not quite so attractive on second glance.

Many brokers within the industry claim that some mortgage deals that on first glance appear to be the most competitive on the market could actually work out more expensive when compared to loans carrying higher interest rates but lower arrangement fees.

It is common for a mortgage lender to calculate their arrangement fee as a percentage of the loan advance - given the level of many mortgages in the United Kingdom today; this can of course result in huge fees being applied. Up to 3.5% may be applied as an arrangement fee at the top end for the chance to fix a low rate of interest for a number of years.

In the current economic client it is true to say that these are uncertain times for mortgage payers in light of the four interest rate rises in less than a year. The cost of borrowing has soared on both sides of the fence - lenders and borrowers alike. This week it was reported that the Bank of England's Monetary Policy Committee decided not to raise interest rates by only the narrowest of margins this month giving rise to speculation of imminent increases. This speculation has only helped to drive up the swap rates on the market – the rates of interest that predetermine fixed-rate prices - which in turning is forcing many lenders to withdraw much of their old range products.

Cast your mind back only two years ago where you would be able to secure a fixed rate mortgage for as little as 4.39 per cent. Nowadays however, many borrowers would expect to arrange a rate in excess of 5.5 per cent.

Since the start of this month, many of the major High Street lenders such as Northern Rock and Halifax have already withdrawn many of their best fixed rate deals. Within the industry it is widely regarded that if swap rates continue to rise, it will not be long before the demise of the sub-6 per cent mortgage unless you are prepared to pay a large arrangement fee.

When looking for the most competitive fixed rate deals, care must also be taken in respect to applicable 'Overhang' penalties. Another way for a lender to offset the cost of a competitive fixed rate of interest is by ensuring that the borrower pays the standard variable rate of interest for a predetermined period of time, or charging an early repayment charge for moving the mortgage before this period ends.

  

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