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Low interest mortgages could mean costly fees

Over the past six months the Bank of England has raised interest rates three times, taking the base rate from 4.5% before August 2006 to 4.75%, then to 5% in November 2006 and then up to 5.25% in January 2007.

Mortgage Loan AgreementAs a result of these interest rate rises many people that are looking at purchasing a property or remortgaging now have to deal with sky high interest rates compared to this time last year. However, despite the interest rate rises the high number of mortgage products available from lenders means that there are still some good value products around for property purchasers and remortgages.

However, before being sucked in by what looks to be a tempting deal it is important for consumers to look into the fees that building societies and banks are charging for lower rate mortgage products.

It seems that some lenders are advertising attractive interest rates to attract custom from those looking for a great deal, but are then recouping some of the costs by charging extortionate arrangement fees upfront. This means that with many lenders consumers have to choose between a competitive rate of interest couples with high arrangement fees or a fee free mortgage with a higher rate of interest.

An officials from one broker stated: 'Lenders are using these products fees for administration and reservation of the mortgages as another income stream to enable them to push down their rates. It does make the market less transparent for the ordinary consumer.'

However, a Northern Rock spokesperson defended the bank, stating: 'What we are doing is giving consumers a complete choice - for those who want low monthly repayments or those who do not want fees. We do not call these charges administration fees - they are product fees.'

Tom Smith
17th March 2007


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