Bad credit mortgages see fees rise

Tuesday, 30 January 2007 12:00

People looking for a bad credit mortgage are paying far higher fees than they were just six months ago.

Since the middle of 2006 the average fee on a sub-prime, or bad-credit mortgage has risen more than £100 from £813 to £923, figures from MoneyExpert.com reveal.

The number of bad-credit mortgages with a fee of over £1,000 has also soared - with 46 per cent more lenders charging four-figure fees than six months ago.

However, it is not all bad news.

Over the same period the average interest rate charged on sub-prime mortgages has risen just 0.24 per cent, despite the Bank of England increasing base rate 0.75 per cent.

"Many people rely on sub-prime mortgages, from the self-employed to people who have very poor credit ratings," said MoneyExpert chief executive Sean Gardner.

"Although it's good news that many lenders haven't passed on the base rate rises on sub-prime mortgages, customers have to be wary on fees."

And there are fewer and fewer firms that allow people to take out a bad-credit mortgage fee-free.

Since the Bank of England started its current cycle of interest rate increases in August 2006, the number of bad-credit mortgages without a fee fell from 71 to 13.

But despite the increases in fees there are still large savings to be made by shopping around.

"If you don't have a perfect credit rating and you are considering a sub-prime mortgage, make sure you search the market high and low as there are thousands of products to choose from," said Mr Gardner.

"High arrangement fees can skew the effective rate of interest you'll get on your mortgage, so don't pay the price for poor research."

There are more than 2,500 different sub-prime mortgages on the market at the moment. About 1,690 charge applicants six per cent or more to borrow money, however there approximately 70 sub-prime mortgages available with an interest rate below the current base rate of 5.25 per cent.

For borrowers with "heavy adverse credit", rates climb as high as 11 per cent, MoneyExpert figures show.

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