Crosby Finance

As financial markets have become increasingly more competitive over the years, lenders are falling over one another to see who can offer the lowest ‘headline rate’ on mortgages.

More and more emphasis is being placed on this single figure, to the point where it is often the single deciding factor for many first-time buyers, who rush into mortgage deals without reading all of the fine print.

However, it is vital that consumers are aware that there is a wealth of other charges to consider when taking out a mortgage – the majority of which can be considerably costly!

The following articles look into the main contributing factors to the overall cost of a mortgage in more detail.

Arrangement fees

According to the FSA (Financial Services Authority) an arrangement fee is a ‘commitment or administration fee… payable to the lender to reserve the mortgage funds’.

Only a few years ago, most arrangement fees, charged to cover the lender’s administrative costs in arranging the mortgage, tended to be around £250.

But as competition has intensified over the headline rate and APR, arrangement fees have rocketed. According to research published at the start of this year, the average now stands at about £575.

In some cases, however, it can cost considerably more. Fees of 2.5% of mortgage balance are not uncommon, which on a £150,000 mortgage would be £3,750..

Most lenders’ arrangement fees are added to the mortgage on completion or refundable if the mortgage does not proceed or the application is not successful, however, some are not. So it makes sense always to check before you apply.