A recent analysis conducted in the UK has identified that fee free UK mortgages are in fact costing borrowers more, as they will end up paying more in the end through paying higher interest rates.

This analysis has prompted this article, as it identifies that fee-free UK mortgage offers are more expensive than deals with an application fee for consumers with a mortgage of £57,000 or more. This is because the interest rate is usually higher. With the average new mortgage loan now at just below £140,000, opting for a fee-free mortgage deal could cost many borrowers dear.

Fee-free UK Mortgages Comparison

Example 1a:
Based on a mortgage of £56,000 and someone taking out a two year fixed rate of 4.47%, they would end up paying £5,005 in interest in the first two years. Add the lenders fees of £1,499 and the overall cost is £6,505

Example 1b:
Again, based on a mortgage of £56,000 and someone taking out a two year fixed rate of 5.35% but fee free, they would end up paying £5,992 in interest in the first two years.

Using the same situation as above but based on the average new UK mortgage of £138,000, the figures work out as follows:

Example 2a:
A borrower taking out a two-year fix at 4.47% and paying fees would pay £13,838 over the two years.

Example 2b:
The same borrower taking out a 5.35% two-year fix and not paying fees, would cost £14,766.

It all goes to show that the bigger the mortgage, the more money you will save by choosing the low-interest option mortgage with a fee, rather than a fee-free UK mortgage deal. From this comparison, you should be aware that fee-free mortgage deals are not what they are cracked up to be. Using the services of a whole of market UK mortgage broker can pay dividends here as they will do their homework and expose any pitfalls of such mortgage deals.

Joe Kocsis the author is an active UK Independent Financial Adviser, a whole of market Mortgage Broker. Follow this link Fee Free UK Mortgages for further information

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