Mortgage Renewal Challenges: Higher Fees and Rates Await Borrowers
Homeowners renewing their fixed-rate mortgages this year are facing significant increases in both upfront fees and interest rates compared to their previous agreements, according to a recent analysis. Over the past five years, the average product fee associated with mortgages has escalated from £1,040 to £1,129, as reported by Moneyfacts. This increase coincides with a dramatic rise in average mortgage rates, which have more than doubled during this period.
Five years ago, borrowers enjoyed an average mortgage rate of just 2.49%. Today, that figure has surged to 5.31%, largely influenced by the Bank of England’s decision to increase its base rate from a historic low of 0.1%, which was established in March 2020.
As a result, homeowners who opted for five-year fixed rates in 2020, when interest rates were considerably lower, are now confronted with a dual challenge: higher costs and increased fees upon renewal. Furthermore, the availability of mortgage deals featuring cashback incentives has dwindled, falling from 31% of mortgage offers in March 2020 to just 22% today.
Experts suggest that lenders are raising their fees in an effort to keep interest rates as competitive as possible. Lewis Shaw, a representative from Shaw Financial Services, stated: “The rise in some booking fees is being driven by lenders attempting to subsidize their headline rates. Additionally, many lenders that previously offered cashback have either reduced the amounts or eliminated them entirely to maintain lower fixed rates.”
Mortgage fees represent a one-time charge that borrowers pay upfront when securing a mortgage, distinct from the interest rate that determines the monthly repayment amount. Nick Mendes from John Charcol brokers advised borrowers to consider both costs when evaluating mortgage options. He emphasized: “It’s essential for borrowers to focus on the total cost of the mortgage rather than solely on the headline interest rate, as a lower rate with significantly high fees may not offer the best overall value.”
For instance, Mendes highlighted a current deal from Santander that features an attractive low rate but comes with a hefty fee of £1,999. This particular offering, a two-year fixed mortgage under 4%, might not be beneficial for many customers due to the high associated costs. This deal is expected to be withdrawn from the market shortly.
Rachel Springall, a financial expert at Moneyfacts, noted: “Borrowers who secured a low fixed rate in 2020 and are now considering refinancing will find that mortgage fees have risen substantially. Beyond the eye-catching low rates, it’s crucial for borrowers to evaluate the overall cost of any mortgage, which includes all fees and potential cost-saving incentives.”
- Springall further advised that the best mortgage deal depends on individual circumstances, particularly the amount needed to borrow.
- For those with larger debts, chasing lower rates may be a priority, while individuals seeking to avoid upfront costs might prefer fee-free options and incentives.
- The most competitive fixed mortgage offers currently typically include upfront fees ranging between £1,000 and £2,000.
- A mortgage with a slightly higher initial fixed rate but lower product fees could ultimately prove to be a more advantageous choice.
