Remortgage warning: Low rates but high fees

Homeowners looking to remortgage are being warned not to fall for low interest rates as mortgage fees are rising.

Some 1.4 million people are due to come to the end of fixed-rate mortgage deals in 2008, with the hope of remortgaging onto another cheap deal instead of a lender's high standard variable rate (SVR) wiped out by the credit crunch for many.

However, recent weeks – before the current olid banking crisis– had seen mortgage interest rates falling.

But consumer watchdog Which? is warning people not to be distracted by falling interest rates, as mortgage fees are rising.

A Which? poll found 26 per cent of homeowner picked their current mortgage mainly because of the interest rate.

Only a fifth of people looked at the overall cost of the mortgage deal – taking into account fees – which are now happily running into four figures.

Some seven per cent said they took a mortgage from their own bank without shopping around and 31 per cent have never switched lenders when remortgaging – leaving the same number of their bank or building society's SVR.

Martyn Hocking, editor of Which? Money, said: "The cost of mortgages has soared in the last couple of years, but a lot of the focus has been on what’s happening with interest rates when in fact it’s the total cost of the deal that’s important.

"Arrangement fees are now more than £1,000 on average, and sometimes much higher, which means that an eye-catching interest rate can be misleading."

He added: “Whatever you do, don’t take the lazy option of simply taking out a deal with your bank or staying on your lender’s standard variable rate.

"If you shop around and do your homework, you could cut your mortgage costs by hundreds of pounds."

Which? Money rules for getting a good mortgage deal:

• Shop around
  Don’t choose a mortgage lender simply because you already bank with it.
• Check the overall cost of the deal
  Don’t get sucked in by a low interest rate, as it could have hefty fees attached.
• Avoid paying the standard rate
  Consider switching to avoid reverting to the standard variable rate when your deal ends.
• Do your homework
  Some of the best deals are not available through advisers, so do your own research as well. .
• Don’t buy insurance from your lender
  Most lenders aren’t best buy home insurers, so shop around to save money.