Buyers warned over fixed-rate mortgage fees

Brits are rushing to fixed-rate mortgages, but are being hit with big fees

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Friday, 27, Apr 2007 09:43

With rumours of a May interest rate rise borrowers have been rushing to take out fixed-rate mortgages, but they are increasingly being stung by large fees.

Some 85 per cent applications for mortgages with online mortgage company Mform.co.uk have been for fixed-rate deals - and there has been a 30 per cent rise in applications compared with last month.

But as Britons increasingly move to fixed-rate mortgages, lenders have started withdrawing cheap deals and fees have been rising.

"Moves in the money markets mean lenders are withdrawing mortgage deals so borrowers need to be rate smart if they want to get the best possible deal," said Francis Ghiloni of Mform.

"That ought to mean focusing on the true cost of your deal and that must mean keeping an eye on fees as they take a substantial bite out of any savings you might make."

Mform analysis shows the ten cheapest two-year fixed-rates mortgages in terms of their interest rate come with fees ranging between £499 and £999. Other fees reach as high as £1,499.

When the cost of the fee is added to the interest rate, the full cost of a mortgage shows lenders with higher initial rates are more competitive. Mform points to Stroud & Swindon's 5.34 per cent two-year fixed-rate deal and Abbey's fee-free 5.74 per cent two-year fixed-rate mortgage.