Mortgage application fees soar

The application fees charged by mortgage lenders have soared by 22% in the last year, research released today shows.

The average fee for a discount mortgage now stands at £407, up from £354 a year ago, while fees on fixed-rate deals have gone up from an average of £402 to £494, according to online broker www.MoneyExpert.com.

These averages disguise a wide variety of charges. While a third of discount mortgages and around one in five fixed-rate mortgages are fee-free, some borrowers are being charged over £1,000 to sign-up for a new loan.

MoneyExpert said that of around 450 discount mortgages on the market, 62% have a fixed fee, while 5% have variable-rate charges, which mean that the amount you pay varies according to how much you borrow. Of the more than 730 fixed-rate mortgages available, 68% charge a fixed fee and 13% have variable charges.

MoneyExpert's chief executive, Sean Gardner, said lenders were hiking the charges to increase their profit margins. "It still makes sense to remortgage, and borrowers should always look out for the best deal possible," he said.

"However researching your mortgage should include looking into fees as well as simply focusing on the headline interest rate."

Alliance & Leicester, which currently offers the best fixed rate over two years at 4.54% has a £999 application fee, while Britannia building society offers a rate of 4.74% for three years for a fee of just £399. Which one is the better deal for you will depend on how much you are borrowing.

Ray Boulger, senior technical manager at mortgage broker John Charcol, said fees have been rising across the board, with borrowers facing higher charges than three years ago when both applying for and leaving a deal.

Mr Boulger said some lenders are charging fixed fees of as much as £2,500 for applications, while variable fees could be as high as 1.5% of the amount being borrowed. But he added that high fees do not always make for a bad deal, with some lenders giving borrowers the option to pay a higher fee for a lower interest rate.

"If these high fees are in exchange for a low rate they can still be good value," he said. "If you have a smaller mortgage, you may be better off going for a deal without fees with a higher rate. If you have a big mortgage, it may be worth paying a fee for a better rate."

A spokeswoman for Nationwide building society, which has increased its application fees in recent months, said the market is now being driven by borrowers' desire for low interest rates.

"Borrowers have got a lot more savvy and are attracted by low rates," she said. "Fees have been introduced as a way to offset these low rates."