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Research shows sneaky fees and charges make it hard to get best mortgage deal

Research from consumer champion Which? reveals that there are more than 40 fees and charges across the market, including set up fees, arrears fees and final repayment fees.

Providers using different names for the same or similar fees. For example, a booking fee can also be called a reservation or application fee. There is also duplication with some lenders charging more than one set up fee.

The research reveals increases to the cost of some fees. The average arrangement fees have almost doubled in the last five years, from £878 in 2009 to £1,588 in 2014 and there is a wide variation between lenders in the cost of the same fees, suggesting that fees don't always reflect the true cost the lender incurs.

Which? also highlights a lack of clarity which makes it difficult for borrowers to tell if the fees are avoidable.

The research shows that consumers borrowing £100,000 over two years could save as much as £1,503 if they took into account the set up fees rather than choosing the product with the lowest interest rate.

This vast array of confusing fees and charges, which aren't always reflected in the standard APR (Annual Percentage Rate of Charge), means the total cost is not clear to borrowers leaving them unable to easily find the best deal.

The research found just 3% of people could correctly rank the cost of five two year fixed rate mortgage deals when displayed using typical information, including APR. This rose to 36% when presenting the total cost of the mortgages over 24 months.

With mortgage repayments the biggest monthly expense for most homeowners, and the prospect of future interest rate rises adding to this, Which? is calling on the Chancellor George Osborne to use his Autumn Statement to make it easier for people to find the best mortgage deal, working with the FCA, industry and consumer groups.

‘Home owners could be paying over the odds for their mortgage because of the complex range of fees and charges that prevent them from finding the best deal,’ said Which? executive director, Richard Lloyd.

‘The Chancellor must act now to stop sneaky fees and charges and end mortgage confusion for consumers. The government and the regulator should also explore better ways of presenting the total cost of mortgages,’ he added.

Suggestions for change include making mortgage price comparison easier. Which? says given the limitations with APR, the government and the Financial Conduct Authority should explore other ways to present the total cost of a mortgage.

It also suggests making the full cost of a mortgages clearer. For example, all compulsory fees payable throughout the deal period should be expressed as a total of fees and included in the advertised costs. It should also be clear which fees payable over the life of the mortgage are compulsory and which are not.

And finally it suggests ensuring that additional fees are cost reflective: Non-product fees and charges that are incurred after the purchase of a mortgage should reflect lenders' actual costs.

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