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More mortgages charging percentage arrangement fees

Half of all fixed rate mortgages now charge arrangement fees which are based on the amount of money customers borrow, research showed today.

The proportion of providers charging a percentage fee has risen by 14 per cent during the past year to 49 per cent of all fixed rate deals, according to financial website MoneyExpert.com.

The fees vary from just 0.4 per cent of the mortgage size to as much as 2.5 per cent, with an average fee of 0.89 per cent, or £1,335 on a typical mortgage of £150,000.

But for people borrowing larger sums the fees can run into thousands of pounds, with a homeowner taking out a £250,000 mortgage with a 2.5 per cent fee paying £6,250.

Only 4 per cent of fixed rate mortgages with a percentage fee have a cap on the amount borrowers have to pay.

Among lenders who levy a fixed fee regardless of the amount being borrowed, the average amount charged has fallen during the past year, dropping from £860 to £790.

However, the reduction is largely due to lenders introducing low fee or fee-free mortgage ranges, which offset the lack of an arrangement fee by charging higher interest rates.

Only one mortgage had a fee of between £100 and £200 12 months ago, but today 49 different products have a fee of this level.

But the highest fixed fee charged has soared by 25 per cent during the past year, rising from £1,999 in September 2008 to £2,499 now.

Pierre Williams, head of research at MoneyExpert.com, said: "Borrowers looking for a mortgage focus on rate, but fee has to be a consideration particularly when these can run into thousands of pounds. All too often we forget about the fee by rolling it straight into the loan.

"Fees are often linked to loan to value ratios and anyone without a significant amount of equity in their house can expect to pay a hefty fee."

Meanwhile, research by financial information group Moneyfacts.co.uk found that the average cost of a two-year fixed rate mortgage has increased by 0.31 per cent to 5.15 per cent since March, when the Bank of England base rate was cut to a record low of 0.5 per cent.

The rise comes despite swap rates, upon which the deals are based, falling during the same period.

But the average cost of a two-year tracker deal has reduced slightly during the same period, dropping by 0.14 per cent to 3.72 per cent.

There has also been an increase in the number of different mortgages available for people with smaller deposits, with the number of 90 per cent loan to value loans rising by 17 to 106, while there are 80 more 75 per cent LTV deals, giving a total of 509.

Competition appears to be slowly returning to the mortgage market, with a number of lenders reducing the cost of their mortgages during the past week.

HSBC launched a discount mortgage of just 1.99 per cent last week, which went straight to the top of the best buy tables, while Cheltenham & Gloucester, part of the Lloyds Banking Group, and Barclay's lending arm the Woolwich also reduced some of their rates.

They were followed yesterday by first direct, which launched a market leading offset tracker mortgage of base rate plus 2.29 per cent, giving a current rate of 2.79 per cent, and nationalised bank Northern Rock reduced the cost of some of its fixed rate deals by up to 0.4 per cent and introduced a two-year tracker.

Michelle Slade, spokeswoman for Moneyfacts.co.uk, said: "All is not lost for borrowers as competition slowly seems to be returning to the mortgage market.

"The number of mortgages available is slowly increasing and the launch of the sub-2 per cent HSBC deal will hopefully spur other lenders on to reduce rates and bring much needed competition back to the market."