Borrowers are being warned against the increasing number of low-rate high-fee mortgage deals on the market as they may not be entirely beneficial.
Virgin Money has most recently launched a string of new fixed-rate mortgages with a one percent fee, which brokers have likened to “taking a leaf out of Skipton’s book”.
However, these additional fees can carry a “nasty sting in the tail”, some brokers have warned.
Writing on platform Newspage, Andrew Montlake, managing director at Coreco, said: “Many consumers have been hypnotised by a low headline rate only to find that the fee or associated conditions carry a nasty sting in the tail, especially when they only pay attention to one column of a ‘Best Buys’ table.”
While percentage fees “do have a place” within product choice and can work in some borrowers’ favour – dependent on the loan amount, Mr Montlake said: “The calculations need to be run and carefully compared.”
Mr Montlake added: “Over the coming weeks and months there will be an interesting battle between lenders who will utilise a whole array of different mortgage products to entice borrowers, and following a calm voice of advice through the cacophony of noise is going to be essential.”
Ranald Mitchell, director at Norwich-based Charwin Private Clients, weighed in: “Product design is going to become a major factor as lenders try to find innovative new ways to sell mortgages and stimulate the market back into action.
“The shifting of interest to added fees is gaining momentum and will undoubtedly benefit some mortgage seekers, while not benefiting others. Buyer beware. In 2024, it will become trickier than ever to cut through the noise and make good decisions. Get advice.”
However, Jamie Thompson, director at Jamie Thompson Mortgages, went one further, saying: “I fear that, a few years from now, this could be the next big mis-selling scandal.
“There will absolutely be cases where this is the right thing to do for the customer, but any adviser recommending it will be writing War and Peace to demonstrate why it’s the right thing to do if they want to be sure their advice is watertight.”
A mortgage product fee is an upfront cost linked to a specific mortgage deal. Typically, mortgages with product fees come with lower interest rates, resulting in reduced monthly payments.
Skipton’s new two-year mortgage range, which is aimed at members at risk of payment difficulties, offers rates starting as low as 3.35 percent at 60 percent Loan to Value (LTV). However, the deals come with a fee of five percent of the existing loan amount, which the mutual says can be added to the mortgage balance.
Despite offering fee-free options on all its ranges, Skipton Building Society said “over half” of its borrowers chose mortgages with a fee to help keep their monthly payments as low as possible.
But before jumping into any mortgage deals, it’s important people weigh up all the costs – short-term and long-term – to avoid racking up “thousands” of pounds more debt.
Jamie Alexander, mortgage director at Alexander Southwell Mortgage Services, said: “It’s imperative for potential buyers to understand that when arrangement fees are pegged as a percentage of the mortgage, the ensuing costs can easily run into the thousands.”
Justin Moy, managing director at EHF Mortgages, added: “Choosing a mortgage product without advice, and being influenced by the headline rate, is financially dangerous and really not the way to be dealing with your most important debt.”
