Six in 10 mortgages charge fees - how to find a good deal
Six in 10 fixed-rate and tracker mortgages on the market come with upfront fees, with the highest charge coming in at £3,999.
While interest rates grab the headlines lesser-known upfront fees charged by lenders are also crucial to finding a good deal. These costs come on top of the interest rate borrowers face on some mortgage products, making it hard to compare value.
With mortgage rates now at a 15-year high, it's important borrowers can find the cheapest deal possible - whether you're buying your first home or remortgaging. Here, Which? takes a closer look at mortgage fees and crunches the numbers to see if you could save money by opting for a fee-free deal.
Which mortgages charge fees?
As of 13 July, there are 4,300 fixed and tracker mortgage products on the market. Of these, six in 10 come with fees and just four in 10 come with no additional fees.
Fees on fixed-rate mortgages currently range from zero to £2,999, while the highest additional charge for a tracker product is currently a whopping £3,999 set by Halifax. The average fee charged by lenders tends to be around the £999 mark.
Broadly speaking, mortgages at higher loan-to-value (LTV) levels are more likely to be offered fee-free, as lenders seek to attract cash-strapped first-time buyers.
Which? analysis of the fixed-term 90% and 95% products currently on offer reveals that just over half of deals come with no extra costs. Meanwhile, only three in 10 products at lower LTV amounts (ranging from 60% to 75%) come with no additional fees.
- Find out more: repayment mortgages explained
Low rates vs fee-free mortgage deals
When researching mortgage products at face value, it can be hard to determine which offers the best deal.
But by using our mortgage repayment calculator, you can test out how much you'd be paying back with a specific rate and additional fee.
We've looked at how the leading fee-free 95% loan-to-value mortgage compares against products with the lowest interest rates with differing fee levels.
We've crunched the numbers based on how much you'd pay over a two-year fix on a £200,000 mortgage set to a 25-year term.
The table reveals the cost of paying the fee upfront and adding it to the mortgage as well as the total paid over two years in each scenario.
| Interest rate and lender | Fees | Monthly repayment (fee paid upfront) | Total paid over two years (fee paid upfront) | Monthly repayment (fee added to the mortgage) | Total paid over two years (fee added to the mortgage) |
|---|---|---|---|---|---|
| 6.04% (Cambridge Building Society) | £599 | £1,294 | £31,655 | £1,297 | £31,128 |
| 6.36% (Halifax) | £999 | £1,333 | £32,991 | £1,340 | £32,160 |
| 6.37% (Cumberland Building Society) | None | £1,334 | £32,016 | £1,334 | £32,016 |
Source: Moneyfacts. Rates correct as of 13 July 2023.
The low-rate deal from Cambridge Building Society which comes with a £599 fee has the lowest cost over two years, but Cumberland's deal rather than the next-best rate from Halifax has the next-lowest cost over the period.
Is a fee-free deal better?
If you're juggling the various costs of buying a home, you might feel that paying a slightly higher rate for the mortgage in exchange for no additional fee is a good trade-off, but make sure you do the sums before taking the plunge.
Should I add the fee to my mortgage?
Your lender might allow you to add the fee to your mortgage, but beware this will increase the amount you're borrowing and therefore what you pay interest on. It also might not always be possible if you are at the limit of what you can borrow.
- Find out more: best mortgage rates for home movers and first-time buyers
How to compare mortgage deals
Finding the right mortgage deal can be a tricky business, but we're here to help with these top five tips.
1. Compare the overall cost of the deal
It's not all about the initial rate, and you should look at the full cost of the deal before making a decision.
When you view mortgages on a lender's website or comparison site, you'll usually see a column called 'APRC', which stands for 'annual percentage rate of change'.
The APRC gives an indication of the overall rate you'd pay if you stayed with the deal for the full term (for example 25 or 30 years).
As you'll want to remortgage at the end of your fixed term, this won't be entirely representative - but it will give you an idea of how the lender's initial rate and standard variable rate (which you revert to after a deal ends) compares to its competitors.
It's also important to look at any early repayment charges and whether you'll be allowed to make overpayments without facing a penalty.
2. Don't get drawn in by added incentives
As well as offering fee-free deals, lenders use other incentives, such as no legal fees, no valuation fees, or cashback to entice borrowers.
These can be worthwhile, but additional extras shouldn't be seen as a crucial element.
For example, cashback offers don't tend to make a dramatic difference in the scheme of things, as most lenders will only offer relatively modest amounts such as £250 or £500.
3. Weigh up the length of the fix
This is currently a big talking point and one which plays on the mind of any upcoming, or existing mortgage holders who need to remortgage.
The average rate on a two-year fix is currently 6.75%, while a five-year fix comes in at 6.27%. Despite costing more, demand is greater for two-year terms as borrowers are hopeful they'll be able to refinance onto a cheaper deal in 2025.
Our recent story on two-year vs five-year fixes weighs up the pros and cons of each.
For those in two minds, three-year fixes are also available. Longer 10-year terms are also on the market for those who don't want the hassle of remortgaging in the next decade.
4. Find the right lender
There are dozens of mortgage lenders out there, and some offer significantly better deals and customer service than others.
Check out our mortgage lender reviews to see how the most common banks and building societies rank against each other.
5. Take advice from a mortgage broker
In such an uncertain time, it makes sense to take advice from a whole-of-market mortgage broker, who can assess all of the deals on the market to find the right one for you.
For tips on what to look for in an adviser, check out our full guide on finding the best mortgage broker.
