Abbey has made the mortgage buying process more difficult for prospective customers with small deposits, and new research from MoneyExpert.com reveals that fees for fixed-rate mortgages are rocketing.
Abbey has introduced a new rule under which customers taking out a 95 per cent mortgage
must pay the £2,499 arrangement fee up front rather than simply adding it to the value of the loan. Its one remaining deal for borrowers with just a five per cent deposit is a five-year fixed-rate deal at 7.04 per cent.
However, the mortgage lender believes the change will not have a far-reaching effect. "Loan-to-value (LTV) ratios of above 90 per cent are not our core market and account for less than three per cent of the business we do," a spokeswoman said. "Our average LTV is 48%."
But moneysupermarket.com believes other mortgage providers are likely to follow suit. Head of mortgages, Louise Cuming, said: "Adding fees onto a 95 per cent mortgage effectively means the lender is exceeding 95 per cent LTV from the outset, something Abbey are clearly nervous about doing in the current climate.
"I fear this will be a growing trend leaving applicants for 95 per cent LTV products not only needing a five per cent deposit, but savings to cover fees, stamp duty and sols costs as well. Financially, borrowers will be better off in the long run if they do not capitalise fees, however, for cash-strapped first-time buyers having to find this amount ‘up front' is yet another hurdle on the way to home ownership."
Meanwhile, MoneyExpert.com claims that the number of fixed-rate deals charging more than £750 in fees has risen dramatically as credit crunch conditions continue. It claims the number of fixed mortgages with high rates has soared by as much as 1,368 per cent in the last 18 months.
The company's research shows that only 22 fixed-rate mortgage deals incurred arrangement fees of £750 or more in September 2006, while the number is now 323 – accounting for 34 per cent of the total fixed-rate mortgage
market. And average fees have increased by 66 per cent from £517.19 in September 2006 to £860.25 now.
Director of MoneyExpert.com, Sean Gardner, said: "Anyone looking to remortgage
or to buy a property for the first time will need to recalculate their options if they haven't factored in fees. The days of fee-free mortgages are over and frankly getting anything under £1,000 is something of a coup. And, with stamp duty reaching an average of £4,950 per property, moving home is becoming more and more expensive.
"Lenders are sick to death of risky borrowers and they won't be taking any chances in the near future. That means high fees, high interest rates and very little manoeuvrability when it comes to negotiating your mortgage."