Mortgage arrangement fees soar as lenders dangle cheap rates

The charges for setting up a mortgage have nearly doubled in the past two years, said comparison site Moneyfacts.co.uk. On average, upfront arrangement fees have risen from 441 in 2005 to 827 today.

Over the past two years, said Moneyfacts, mortgage firms have increasingly subsidised low headline interest rates through higher fees. As a result, it can be very hard for consumers to compare the prices of different home loans. "The rise in fees may not automatically mean the cost of the deals has gone up," said David Knight of Moneyfacts. "What it does mean is that the maze which borrowers need to navigate to get the best deal has become more difficult.

He added: "Unfortunately, too many borrowers still focus at first on getting the best rate, without taking full consideration of the true cost of the deal."

On some mortgages, arrangement fees of well over a 1,000 are in place. According to Moneyfacts, however, 24 per cent of the mortgages currently on offer in the UK have no arrangement fees at all.

Meanwhile, market research group Mintel has warned that millions of mortgage holders could face financial difficulty due to the credit crunch. It said increasingly cautious lenders could offer homeowners less favourable rates when they try to remortgage after, say, coming off a fixed-rate deal.