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Last Updated: Saturday, 9 December 2006, 14:04 GMT
Home loan fees rise to curb rates
By Paul Lewis
BBC Radio 4's Money Box

A house in the suburbs
Most lenders have now also raised their standard variable rates

Mortgage lenders have been putting up their fees to unprecedented heights with 11 raising them by up to 200 in November.

The so-called "arrangement fee" for taking out a mortgage can now easily be 1,000 or more and has to be paid when the loan is taken out.

Experts say one reason for this rise is the growing cost of administration since mortgages were regulated by the Financial Services Authority (FSA) in October 2004.

And charging a fee upfront also enables the lender to keep down the interest rate which is what a lot of people look at when they pick a lender.

But mortgage expert Ray Boulger of John Charcol told BBC Radio 4's Money Box that higher fees can work to the advantage of borrowers too.

"A lot of lenders are offering a choice of fee and rate so you have the option of paying a higher fee to get a lower rate," he said.

"It would be simpler if every lender offered one standard variable rate mortgage. But it wouldn't be good for customers. The greater choice the greater opportunity there is for customers," he added.

If people don't get advice there is a strong possibility they will end up with the wrong deal
Ray Boulger, John Charcol
But he admitted that the growing complexity of working out the best deal was good news for mortgage advisers.

"There are all sorts of options in the market and if people don't get advice there is a strong possibility they will end up with the wrong deal," he said.

"Since mortgage regulation came in two years ago the statistics show a higher proportion of people do consult a broker."

And he blames regulation for that. "The key facts illustrations which the FSA requires contains a lot of information but it is complicated," he said.

And he says brokers can help in other ways.

"It's not just the total cost," he said. "You have to consider how important is it to have some flexibility in the mortgage. Or if you want a 95% loan you need to look for a lender who doesn't impose a higher lending charge."

The good news on charges is that exit fees, which are charged at the end of the loan, are not rising as they did in previous years.

Mr Boulger says that is because the regulator is looking into them.

"Exit fees have been going up quite slowly in the last year or so," he said, adding: "The FSA is due to report in the new year. And because lenders are aware of the FSA they have been much more cautious in putting them up recently.

"The problem with exit fees is that they are not transparent. Lenders can put them up at will and that's one of the things the FSA will address."

BBC Radio 4's Money Box was broadcast on Saturday, 9 December at 1204 GMT and repeated on Sunday, 10 December at 2102 GMT.

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