Mortgage fees 'costly for borrowers

UK mortgage customers have paid over £1bn in higher lending charges over the past five years, according to new research by Nationwide building society.

The society estimates that since September 2000 more than 800,000 borrowers have faced a fee for borrowing a large proportion of the cost of their home, of whom nearly 500,000 were first-time buyers.

The fees are charged by some of the UK's largest lenders on all borrowing above a certain proportion of the property's value, usually 90%, but sometimes as little as 75% loan to value (LTV).

They tend to be a percentage of this excess borrowing, so the higher the value of the property you buy, the more you pay.

Most lenders will give you the option to pay the charge upfront or add it to your loan. Adding the fee to your mortgage will increase it, as interest will become payable on it.

The society says that a £1,500 higher lending charge added to a 25-year mortgage would end up costing around £2,700 if the rate on the mortgage was 5.49%. On a higher rate the total cost would be more.

Nationwide has highlighted the level of the higher lending charge levied by some of its high street rivals.

At the UK's largest lender the Halifax, a borrower taking a mortgage of £95,000 to buy a property for £100,000 would pay a charge of £1,450, at Abbey they would pay £1,600 and at RBS the cost would be £1,790.

On top of these charges the lenders often have higher rates on larger loans, so customers pay even more for larger loans.

Halifax, for example, offers a fixed-rate deal to first-time buyers which costs 4.39% on loans up to 90% LTV and 4.69% on loans between 90 and 95% LTV.

Some high-street lenders have dropped the higher lending charge and just charge higher rates to those who borrow a larger proportion of their home's value.

Cheltenham & Gloucester, for example, offers two-year fixed rate of 4.89% to customers who want to borrow up to 90% LTV and a fixed rate of 5.19% on larger loans, Northern Rock adds 0.2% to its fixed rate for every extra 5% borrowed over 85%, and Nationwide adds 0.3% for every extra 5% borrowed over 90% LTV.

Nationwide's executive director, Stuart Bernau, said some lenders risked being accused of "profiteering" by charging both a higher lending charge and higher interest rates.

"Despite the negative publicity around higher lending fees, it is clear that many borrowers continue to find themselves faced with this charge at a time when their finances are already stretched and they are at their most vulnerable," he said. "Prospective borrowers should shop around for their mortgage and always ask the question: 'Will I be paying a higher lending charge?'"

Borrowers have also been warned to look beyond the "mortgage challenges" currently being promoted by some lenders.

NatWest and Nationwide have both offered cash payouts to mortgage customers of other, selected high-street lenders if they are unable to reduce their monthly repayments.

Mortgage broker Bradford & Bingley said customers should look beyond the offer and read the small print carefully as arrangement fees, exit fees and other remortgaging costs could mean the new deal is more expensive over the long term.

" Lowering monthly repayments is easy to achieve and is futile unless it ultimately saves the borrower money over the term of the deal," said Duncan Pownall, mortgage development manager for Bradford & Bingley.

"There could be a number of instances where a borrower actually ends up paying more because of the amount of fees they have to pay. It's imperative, therefore, that a borrower reads all the small print carefully before signing up to any new deal."