With a new spring homebuying season approaching, would-be British homeowners face a daunting market. It’s already harder to purchase a home due in large part to skyrocketing mortgage rates and surcharge fees. Indeed, Moneyfacts has reported that the average mortgage rate has now broken into the “5”s. This is a major change for borrowers looking to finance new properties.
The average rate for a two-year fixed mortgage is at 5.33% right now. In comparison, the five-year fixed mortgage rate is lower, at 5.18%. These numbers are indicative of housing market trends overall, with just under 7,000 residential mortgages currently being offered. Borrowers need to move on from interest rates to contend with rising product fees baked into these mortgages.
Chris Sykes, a mortgage expert, says most products have increased their fees markedly over the past few years. Over the past five years, the average product fee for a new fixed-rate mortgage has increased by £81. Now, if you consider that the average total fee is £1,121. This unprecedented jump is creating a significant hardship for borrowers. It’s no wonder that some lenders, like Bespoke Bank of Ireland, are making a killing—charging as much as £3,995 in fees—for their bespoke products aimed at these ladder-climbing, complex cases.
For London, the property market has its own special challenges. The average home in the capital now costs almost £530,000, compared to an average UK home of £270,000. As prospective buyers weigh their options, they must consider how these financial factors impact their overall affordability and long-term financial health.
“There is often a trade-off between rate and fee,” – Mark Harris, the chief executive of the mortgage broker SPF Private Clients.
How this trade-off looks is highly dependent on personal situation. For those considering substantial loans—specifically over £250,000—Harris advises that opting for a lower rate paired with a higher fee is often the more financially sound decision. He proposes that borrowers who take out smaller loans be rewarded proportionally. For instance, deciding on the higher rate and lower fee could allow them to maximize their savings.
David Hollingworth, associate director at L&C Mortgages, stresses the attractive draw of lower rates up front for borrowers. He argues it may make more sense for others to pay a little extra per month to avoid expensive one-time costs.
“Some people could be attracted to the lower rates but then actually it would be better for them to pay slightly more monthly and save themselves the fee,” – David Hollingworth.
With all of these conversations continuing to evolve, it is more important than ever for prospective homebuyers to evaluate their financial circumstances with great care. For borrowers who locked in low rates back in 2020, they might be faced with more expensive fees now. These higher costs could make it harder for them to refinance or purchase new homes.
The arrival of spring usually signals the beginning of one of the busiest times in the housing market. Eventually, this heightened activity creates a positive feedback loop of greater competition and ultimately more capital injection into competition between buyers and lenders. It’s exciting to see a host of other high street lenders, most notably Santander, Halifax and Barclays, recently launching new products. These alternative options are generally quite expensive. Nearly all of their mortgage products have an average fee of £1,999 encumbering them.
In this environment of rising costs and fluctuating interest rates, prospective homeowners are urged to conduct thorough research before committing to any mortgage product. It’s critical that they do so with a full understanding of their options. It’s important for them to consider interest rates and related fees together to determine which combination will work best with their financial objectives.