Percentage-based mortgage fees alert

Watch out for a crafty new tactic being used by some banks and building societies to propel themselves into the mortgage "best buy" tables.

The traditional mortgage arrangement fee - which has crept up to an average of £500 - is being replaced by some lenders with a fee that is a percentage of the loan rather than a flat amount.

Northern Rock is currently offering a two-year deal where the rate is fixed at just 3.99%. It sounds fantastic, but the arrangement fee is 1.5% of the loan, equal to £3,000 on a £200,000 mortgage.

Nick Gardner of Chase De Vere Mortgage Management says big percentage-based fees such as this "have very limited appeal".

West Bromwich building society has a two-year fix at 4.19% where the borrower pays a 0.75% fee - £1,500 in the case of a £200,000 mortgage, but only £375 for a £50,000 loan. And Leeds building society has a deal fixed at 4.69% until October 2015 where the fee is 1%.

Borrowers should get into the habit of looking at the total cost of the mortgage, rather than treating these features in isolation, says Melanie Bien at mortgage broker Savills Private Finance. She highlights Portman building society's current 4.3% two-year fix with a £499 fee.

If Northern Rock had been hoping to get into the Moneyfacts best buy tables with its 3.99% deal, then it has failed. Moneyfacts last month urged borrowers to beware of percentage-based arrangement fees, and did not include the deal in its online best buy fixed rate mortgages table this week.

However, the West Bromwich 4.19% deal had somehow managed to overcome Moneyfacts' objections and was topping the table. A Moneyfacts spokeswoman described the deal as "a very good rate".