New mortgage price battle focuses on fees and charges

Yorkshire and Clydesdale Banks challenge rivals with half-price loan arrangement fees

from next Tuesday borrowers can get half-price arrangement fees at Yorkshire and Clydesdale banks. While it's a gimmicky approach to a major financial decision, it reveals that home loans are beginning to become more competitive and, more crucially, that the focus is moving away from just the headline interest rate on to the total cost of the deal.

The banks aren't the first to slash arrangement fees to encourage borrowers: FirstDirect has been offering mortgages with a £99 fee since last July. But as we hit the prime spring homebuying season, the move signals a new price war, with both new borrowers and remortgagors set to benefit.

The deal cuts the arrangement fee across the banks' range of mortgages from £999 to £499. "We understand the importance of arrangement fees and that's why we're offering half-price fees through to early July," says Steve Reid, of Clydesdale and Yorkshire Banks. "This isn't the first time we have offered this kind of deal, and if it's successful then it's possible that we would extend it to ensure we remain competitive."

FirstDirect says its £99 fee has been a success. "Last year we took the decision to offer low fees across our mortgage range and customers found that the clarity made it easier for them to make their decisions," says Richard Tolchard of FirstDirect.

His mention of clarity raises an key issue. With so many different mortgage deals around, anything which makes it easier to compare deals is good. But as it stands, it's important to look at fees in conjunction with rates. Depending on the size of mortgage you need, you could be better off with a high fee and a low rate, for instance.

"The mortgage fee has more of an impact on smaller loans and shorter terms, whereas with a larger loan, the interest rate becomes more important," says Andrew Hagger of Moneynet. "It isn't as simple as referring to a best buy table, especially as some lenders still launch attention-grabbing interest rates, hoping that it will be sufficient to win custom from those who don't take the time to shop around or use the services of an independent financial adviser or mortgage broker."

For that reason it's important to be wary of half-price fees, warns Drew Wotherspoon of John Charcol. "Taken at face value, the thought of a mortgage lender offering anything at half price seems both appealing and surprising. But, as ever though, the devil is in the detail. The arrangement fee is only one aspect to take into account when considering the right mortgage, with the size of your mortgage and the actual interest rate equally as important. It is vital that borrowers work out the total cost of a loan over the period," he says.

Melanie Bien, of the independent mortgage broker Private Finance, agrees that borrowers should look at the total cost of a deal, and not be swayed by a half-price offer. "When homeowners are struggling with higher living costs and worried about rising interest rates, a half-price offer on mortgage arrangement fees is bound to be attractive. However, borrowers must work out the total cost – rate plus fees – when comparing mortgage deals. "While Clydesdale and Yorkshire are slashing their fees, their rates are significantly higher than the best buys in the marketplace, so borrowers who are tempted by lower fees may end up paying more in the long run."

For example, if you were to take a 90 per cent LTV five-year fixed rate for £200,000 with Clydesdale at 6.69 per cent, you would pay a total of £82,939 over five years, including the £499 arrangement fee. However, Manchester building society offers a five-year fixed at 6.25 per cent for an upfront fee of just £100 more. It means borrowers would pay £79,739 for the five-year period, a total saving of £3,200.

Another lender launching a range of new deals this week was the Coventry building society. However, while some of its mortgages have no arrangement fee, the charge could be as much as £1,999.

"When pricing our mortgage range we focus on providing choice for our members," explains Colin Franklin of the Coventry. "For example, borrowers who need a large mortgage may benefit from a flat arrangement fee, while a borrower who has a smaller loan wouldn't want to pay a large fee to remortgage."

He advises borrowers to look at the whole cost of a mortgage as well as considering the lenders' SVR at the end of the discounted period.

But Andrew Hagger says the range of deals is confusing. "Banks and building societies continue to develop products with profit margins based on various rate and fee combinations but while it may work for them, for the person on the street it's just a big headache," he says. "The sensible option is to sit down with an independent professional adviser to help sort through deals and ensure you don't make what could be a potentially expensive mistake."

Arts & Entertainment
The Honesty Policy is a group of anonymous Muslims who believe that the community needs a space to express itself without shame or judgement
music
Arts & Entertainment
Martin Freeman as Lester Nygaard in the TV adaptation of 'Fargo'
tv
News
Waitrose will be bringing in more manned tills
newsOverheard in Waitrose: documenting the chatter in 'Britain's poshest supermarket'
Sport
Pablo Larrazabal jumps into a pond in Kuala Lumpur to escape a swarm of hornets
videoSpain's Pablo Larrazabal's had a refreshing solution
VIDEO
News
Who makes you happy?
happy listSend your nominations now for the Independent on Sunday Happy List
Arts & Entertainment
tvIt might all be getting a bit much, but this is still the some of the finest TV ever made, says Grace Dent
Sport
Jonathan Trott will take a second break from cricket after suffering a repeat of the stress-related illness that forced him out of the Ashes tour of Australia
sport
Life & Style
life
Life & Style
fashion
Arts & Entertainment
Ian Anderson, the leader of British rock band Jethro Tull, (right) and British guitar player Martin Barre (left) perform on stage
musicJethro Tull frontman leads ‘prog rock’ revival
Life & Style
Father and son: Michael Williams with son Edmund
lifeAs his son’s bar mitzvah approaches, CofE-raised Michael Williams describes the unexpected joys he’s experienced in learning about his family’s other faith
Sport
Gareth Bale dribbled from inside his own half and finished calmly late in the final to hand Real a 2-1 win at the Mestalla in Valencia
sport
Arts & Entertainment
Who laughs lass: Jenny Collier on stage
comedy... writes Jenny Collier, the comedian whose recent show was cancelled because there were 'too many women' on the bill
News
House proud: keeping up with the Joneses now extends to children's playhouses
newsLuxury playhouses now on the market for as much as £800
News
news
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    1st Line Helpdesk Engineer Apprentice

    £150.00 per week: QA Apprenticeships: This company has been providing on site ...

    Telesales & Sales Support Apprentice

    £221.25 per week: QA Apprenticeships: This company is a well established Inter...

    Client Relationship Manager - SQL, Python

    £40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

    **Financial Services Tax**

    £35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

    Day In a Page

    How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

    How I brokered a peace deal with Robert Mugabe

    Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
    Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

    British Muslims's Happy video attacked as 'sinful'

    The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
    Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

    Michael Williams: Do as I do, not as I pray

    Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
    A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

    A History of the First World War in 100 moments

    A visit to the Front Line by the Prime Minister's wife
    Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

    Jenny Collier: 'Sexism on stand-up circuit should be extinct'

    The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
    Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

    Cannes Film Festival

    Ken Loach and Mike Leigh to fight it out for the Palme d'Or
    The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

    The concept album makes surprise top ten return

    Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
    Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

    Lichen is surprise new ingredient on fine-dining menus

    Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
    10 best baking books

    10 best baking books

    Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
    Jury still out on Manchester City boss Manuel Pellegrini

    Jury still out on Pellegrini

    Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
    Ben Stokes: 'Punching lockers isn't way forward'

    Ben Stokes: 'Punching lockers isn't way forward'

    The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
    Mark Johnston: First £1 million jackpot spurs him on

    Mark Johnston: First £1 million jackpot spurs him on

    The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
    Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

    Ricky Gervais: 'People are waiting for me to fail'

    As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
    Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

    Mad Men returns for a final fling

    The suits are still sharp, but Don Draper has lost his edge
    Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

    Google finds a lift into space will never get off the ground

    Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit