Lending rates sky-rocket

Article source: www.yourmortgage.co.uk
Tuesday October 2, 2008

Though this year, the average mortgage product available on the market has seen an increment in yearly repayments of £200, this figure is expected to increase significantly as this financial year progresses.

Following a report by moneyfacts.co.uk, a price evaluation website, the classic arrangement fee charged by mortgage lenders to set up and process a mortgage application had jumped from an already high £841 to a positively worrying £1,029.

All the relevant clerical costs that could be incurred in the process of granting a new mortgage application are believed to be adequately covered by the arrangement fees quoted above. However, the recent steady increments imply that money minded lenders, particularly in the current financial climate, are trying to cut the cost of their mortgage product sales by randomly elevating the amount they charge borrowers in fees. It seems apparent now that the days of the £99 or even zero rates arrangement fees are well and truly over, for the time being anyway, and lenders feel that with their current liquidity problems they have no other option but to pass these elevated administrative costs on to their prospective mortgage customers.

Market analysts in the city are augmenting our fears by saying that at the moment there is no reason for any prospective home buyers to wear a smile; they believe that the trend of increasing arrangement fees looks set to continue and the arrangement fees will undoubtedly increase as this financial year progresses.

According to the Director of Savills Private Finance, Melanie Bien, a number of mortgage lenders are preparing to launch mortgage products with higher arrangement fees over the next couple of days to facilitate an increase in their individual operating margins. She further shed light on the importance (to the borrowers) of checking the total amount the mortgage costs, including the rates plus fees, when comparing different deals on current mortgage products.

Those foreseen to be the adversely affected are borrowers who choose to sign up to a tracker mortgages; tracker mortgages are those whose interest rates fluctuate in relation to the Bank of England Base Rate. Tracker based mortgage products are expected to become increasingly popular over the coming months with borrowers who are looking to switch as the Bank of England base rate is widely predicted to drop over the next twelve months.

Presently, there is a large trade off for mortgage customers between the rate of interest they will have to pay on their mortgage and the arrangement fee; it follows that the lower the rate of borrowing charged on the mortgage product, the higher the arrangement fee will be and vice-versa.

Therefore, one can basically assume that, the larger the amount of the mortgage is, the more important it is for the mortgage customer in question to aim to pay a lower rate of interest. Subsequently, paying a large arrangement fee for a mortgage, in exchange for a lower rate of borrowing may be a sufficient trade off. On the other hand, if the outstanding amount to pay on the mortgage, post arrangement, is low, the mortgage client may opt to go for a mortgage product with a lower arrangement fee; this would obviously depend on their individual circumstances and how much they can afford to out lay in monthly mortgage repayments.

Whatever the borrowers individual circumstances, with so much uncertainty in the market one should take time to use the comparison facilities of websites like moneyfacts.co.uk.