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Watch out for mortgage arrangement fees

These days taking out a mortgage can be very expensive and difficult. A couple of years ago, lenders were doing all that they could to make it easier and more affordable to take out a mortgage, such as offering higher income multiples and increasing repayment periods for borrowers. Even when interest rates started to go up in August 2006, people were still flocking to take out huge mortgages on expensive properties. However, last summer all of that changed.

In late summer last year the global credit crunch made its ways across the Atlantic, having been sparked in the sub-prime mortgage sector in the United States. Within a couple of months there had been radical changes in the mortgage and finance industries. In a complete turnaround lenders started to make it more and more difficult for borrowers to get a mortgage. Why? Because lenders themselves were having difficulties in securing funding to finance their lending, and this meant that they had to try and restrict their lending.

These days many mortgage lenders have cut their income multiples, taken a variety of mortgage products off the shelves, and closed the doors to new borrowers. In addition they have raised deposit requirements by a considerable level in some cases, and have hiked up the rates on their mortgage products despite three base rate cuts between December 2006 and April 2008.

Another area of mortgages that has been affected since the onset of the credit crunch is the arrangement fee. According to industry officials these mortgage arrangement fees have close to doubled in some cases, and this is making life even more difficult for those looking for a mortgage or remortgage deal. Officials have stated that it is vital that borrowers look at the arrangement fee that is being charged in addition to looking at the repayment periods and interest rates being charged on any mortgage.

One official stated: 'After all the panic of recent weeks in the mortgage market, people may be tempted to grab the best deal they can and focus on rates to the exclusion of everything else. They could be in for a nasty shock when it comes to the fee which is charged as they have rocketed in the past year.'

Figures show that the arrangement fee on a best buy three year fixed rate mortgage has rocketed in the past year by a massive 96%, taking it from an average £578 to an average £1132. The rise on a two year fixed rate is slightly lower, having gone up from an average £999 last year to £1478 this year. These arrangement fees can be added to the mortgage but industry officials warn that this could mean paying a hefty amount of interest if you do not pay the fee upfront. Things could be even worse for those that remortgage regularly and keep adding these fees to their mortgage, as they will ultimately end up paying thousands of pounds in extra interest over the term of their mortgage.

10th May 2008

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