Borrowers 'should use plastic' to pay mortgage fees

Borrowers are paying an average of £1,044 to set up their mortgages. If added to their mortgages, the average amount rises to up to £1,701.

With 11.4 million live mortgages in the UK, website uSwitch.com estimates that the mortgage industry is raking in £2.6bn through set-up fees.


The average mortgage arrangement fee is £1,044; for a fixed-rate mortgage it is £1,054 and for a tracker £1,017.

If the average arrangement fee of £1,054 for a fixed-rate mortgage is added to the mortgage, it increases by £720, or 70%, to £1,791, with the maximum fee for arranging a mortgage currently £1,875.

Over 25 years, interest of £1,185 will inflate the cost of this fee to £3,060.

Nearly half (49%) of 18 to 34-year-old home owners currently add the fees to their mortgage compared with just a fifth (22%) of over 55s.

But uSwitch says they would do better to pay off the charges on a credit card offering 0% on new purchases.

It says that by putting the average fixed-rate mortgage fee of £1,054 on a standard 13-month purchase card, people could save on interest and would have to set aside just £81 a month to clear it.

If the same fee was added to the mortgage, it would have already cost £26.36 in interest over the same 13-month period.

But, says uSwitch, the borrower must clears the debt within the 0% period, or be hit with a hefty interest rate.

Michael Ossei from uSwitch.com said: “With a potential base rate rise looming, more people are being tempted to fix their mortgage. But with higher arrangement fees, this is a real Catch-22 for consumers who are struggling to find the funds to pay mortgage set-up costs and who fall into the trap of adding them to their mortgage.

“It may be convenient, but it comes at a hefty cost. For first-time buyers especially, these fees could be what stops them getting on the ladder. But adding fees to a mortgage will see the cost snowball.



“Adding arrangement fees to a mortgage should always be seen as a last resort. But if you cannot afford to pay them upfront, putting the fees on a credit card offering 0% on purchases can help spread the cost painlessly. Consumers just need to make sure they can pay the amount off in full at the end of the introductory period.”