Mortgages misunderstood

New Which? research finds that, as mortgage fees spiral, 90% of homeowners and homebuyers struggle to identify the total cost of a mortgage deal.

While interest rates on many mortgages are at an historic low, arrangement fees have rocketed in the last two years and our analysis of around 2,800 mortgages finds that only 19% of mortgage deals are now available without any set-up fees.  So it’s more important than ever to understand the total cost of a mortgage – yet new Which? research reveals that many consumers can’t spot the best deals.

We asked 1,001 homeowners and homebuyers to rank five two-year fixed-rate mortgages in order of total cost over the two years, including monthly repayment charges and arrangement fees, based on borrowing £100,000. Only one in ten (10%) correctly ranked all five mortgage deals in the correct order, and just a quarter (27%) could identify the cheapest and most expensive deals, despite half (49%) saying they found the test easy.

Only three in ten (30%) people who have remortgaged, and a quarter (25%) of people who had bought their first home in the past five years, correctly ranked the cheapest and most expensive mortgages, compared with one in five (22%) potential homebuyers.

Comparing mortgages based on interest rates alone may not give an overall indication of best deal for you because it does not reflect the overall cost of a mortgage.  Depending on how much you plan to borrow and the length of the deal, some people may be better off choosing a mortgage with low set-up fees and a higher interest rate.  Yet, in a separate survey, just three in ten (29%) people who took out a mortgage recently said the total cost is important – compared to half (52%) who said the headline interest rate was important.

Which? wants all lenders to display the total cost of mortgages clearly to make it easier for consumers to compare and for the industry to explore alternatives to APR in the mortgage market. We also want reassurance from the lenders that fees reflect the true cost to lenders; there is no clear sign that set-up costs have increased for lenders but arrangement fees have spiralled in the past years. Increasing arrangement fees not only makes it more expensive to switch but can damage competition.

Which? executive director, Richard Lloyd, said:

“While it’s good to see lenders now offering lower interest rates, mortgage arrangement fees have risen dramatically in the last two years making it increasingly important for borrowers to understand the overall cost. Our research shows that even people who already have a mortgage struggle to recognise the cheapest deal.

“Lenders should be more transparent about the true cost of mortgages so that borrowers can more easily compare deals and find the best one for them.”

Even after you have taken out a mortgage, you can still face a range of charges from storing house deeds to fees for being in arrears or even for overpaying.

These fees can vary widely depending on the lender. For example, Ipswich Building Society charges £35 for a bounced cheque or failed direct debit, whereas Norwich and Peterborough Building Society charges just £5 and £2 respectively. And a quarter (27%) of lenders charge no admin fees when closing down a mortgage, whereas some will charge up to £195 to send you the deeds.

We want to see more transparency around post-sale fees and for charges and penalties to reflect lenders’ actual costs.

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Notes to editors:

1          Populus, on behalf of Which?, interviewed 1,001 UK adults online between 3rd and 7th May 2013. Populus is a member of the British Polling Council and abides by its rules. We asked people to rank five two-year fixed-rate mortgages in order of overall cost (monthly repayment and arrangement fees) over the initial deal period, using a calculator if they wished and assuming they were borrowing £100,000. Our sample was made up of people who in the past five years had remortgaged or bought their first home with a mortgage, or were planning to buy their first property within the next year.

2          In May 2013, Which? examined 2,803 mortgages on offer from 79 different mortgage lenders to see which mortgage products came with the biggest fees to set up your mortgage and close it down.

3          Populus, on behalf of Which?, interviewed 1,013 UK adults online who had taken out a mortgage in the last five years, between 17th and 21st April 2013. Populus is a member of the British Polling Council and abides by its rules.

4          Mortgage arrangement fees have risen by around 66% to an average of £1,506 in the past two years, according to Moneyfacts.

5          Which? believes that consumers should seek professional mortgage advice before buying a property. The Which? Group offers an impartial mortgage advice service. Which? Mortgage Advisers look at every mortgage from every available lender. Visit or call 0800 048 3331.

6          Set-up fees include arrangement fees, arrangement admin fees, booking fees, completion fees, packager fees and reservation fees.

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