For many buyers, choosing a mortgage deal that doesn’t have a fee attached would be the obvious option, saving what could amount to thousands of pounds in some cases.
However, a fee-free mortgage deal may not offer better value over the term of the mortgage, as the deals often have a slightly higher rate of interest. According to a recent financial stability report produced by the Bank of England, the number of new mortgage deals that did not charge an arrangement fee had increased by almost 50% in the last year. The Bank of England believes that this is proof that the cost of borrowing is decreasing, and is excellent news for first-time buyers and those who are moving home.
However, it may be that buyers who face rising costs of buying a property, along with the strict affordability regulations, are opting for the fee-free deals as a way to save money. Research has found that the fee-free option may not always be the cheapest option overall. The overall cost will depend on the amount borrowed, Loan To Value ratio and the length of the term. Generally speaking, a lender will offer a fee-free mortgage deal with a slightly higher interest rate, which may cost more overall. However, if a borrower has a higher LTV and has borrowed a low amount, it will cost more to pay the arrangement fee each time they swap to a lower rate deal.
CeMAP courses equip mortgage advisors with the information they need to find the most cost effective deal for buyers.