Julia Harris commented: “Ten years ago, mortgages fees (combined total cost of arrangement and exit fees) averaged £300; today this figure has trebled, to an average cost in excess of £900, with some exit fees alone costing up to £295. Combine this with the rising stamp duty burden and the possibility of further interest rate rises, and the result will be that moving home or changing mortgage providers will be an even more costly exercise.
“With competition in the mortgage market driving down ‘profit’ margins on rates, lenders have sought to recoup income by means of higher fees. Not only have flat fees risen, there is also a trend for lenders to use percentage fees, now up to 2.5% of the mortgage advance.
“There is also an alterative motive for the lenders to generate additional fee income. When predicting business performance forecasts to shareholders, fee income can be used to predict growth, whereas interest turn (profit margin) is excluded.
“If fees continue to grow at the same rate during the next decade, they could hit £2,700 by the time we reach 2016. Even today for those opting for short term deals, the extra cost of fees can make these deals uneconomical. Imagine having to pay £2.7K every two, three, or five years. Your interest rate would have to be something pretty special to make this worthwhile.
“Let’s hope that fee growth doesn’t reach such levels, as this could make the mortgage market very stagnant, switching deals unworkable and dampening competition in the mortgage market. Whichever way you look at this, it will not benefit the consumer.
“Already the FSA is looking into the practice of exit fees, but if the recent reaction to fee capping by the credit card market is anything to go by, forcing down charges in one area will potentially result in increased costs to the consumer by other means.
“Most recently the launch of ING into the mortgage market with its no fees/ low fee, straightforward approach, could see the market turned on its head. It is early days, but it will be interesting to watch whether any other lenders follow in ING’s footsteps, especially if it is as successful as it was in the savings market. After all, it’s a transparent approach, as well as a decent rate, which many consumers are seeking.”
