Borrowers urged to watch out for hidden mortgage costs

A financial website has warned potential borrowers to be wary of the hidden costs when selecting a mortgage.

Cliff D'Arcy at the Motley Fool said that whilst mortgages as low as 4.39 per cent fixed for five years look like a good deal, the Bank of England sets its base rate at 4.5 per cent. As a result, mortgage lenders do not make much money from the mortgages.

Lenders are therefore looking for other ways to bring in revenue, such as by increasing arrangement fees, charging high exit tariffs and providing "rip-off" insurance premiums.

Mr D'Arcy highlighted the fact that of the top six lenders in on a proce comparison website's best buy table, the "lowest arrangement fee is £349, three loans charge £395 and two charge £499, giving an average fee of £422". He said that the highest charge, £499, was equivalent to "an extra 0.25 per cent a year on a £100,000 loan with a two-year deal".

He also said that exit fees had risen sharply in the 12 months and that the insurance provided by mortgage lenders can often be as high as three times the premium of the cheapest policy available. Lenders can also add the premium to mortgage charges and add interest.

The Financial Services Authority has said that it views the exit fee practice as unfair, and is investigating increasing administration fees.