A new mortgage? That'll be £10,000: Lenders raise fees to 'astronomical' levels

Banks and building societies are cashing in through charges that can add crippling extra costs to buying a home or remortgaging.

The swingeing fees mean that this week's decision by the Bank of England to cut the base rate by a quarter point may offer little benefit.

The Abbey has the highest fee of £9,999 on a fixed-rate deal of 5.59 per cent for loans of between £500,000 and £750,000.

Some lenders have gone even further by imposing five-figure arrangement fees through linking the charge to a percentage of the amount borrowed.

While these figures are at the extreme, they are indicative of a wider move by mortgage lenders to impose punishing increases in these fees.

Research by the personal finance website Moneyfacts.co.uk found the average fee has virtually doubled in two years to £827.

Mortgage analyst at the website, David Knight, said: "Thousands of borrowers coming off a two-year fixed rate will be bracing themselves for higher interest charges, with the best deals over one per cent higher than in 2005.

"But they will also need to prepare themselves to pay much higher fees."

Mortgage brokers say the fees are a blatant attempt by lenders to make money. Darren Cohen, of The Mortgage Centre, which operates via the web, described the fees as "astronomical".

He said: "The charges bear no relation to what the lenders have to do.

"When mortgages are arranged through a broker we do all the work up front, including all the verification of identity and income. All the lender has to do is get an under-writer to say yes or no and they then press a button to instruct a valuer.

"Despite that, they are getting away with charging astronomical fees. By contrast we charge a flat fee of £250."

Banks and building societies are raising money through high fees in order to keep the headline rate on the loan looking low.

However, the reality is that consumers roped in by such home loans will probably end up paying much more than others with a higher interest rate.

Abbey defended its £9,999 charge saying: "We endeavour to provide our customers options that are suitable for their individual circumstances.

"For some it is a low rate with higher arrangement fee - large loans in particular tend to find this option works for them.

"For others a minimal fee is preferable at the expense of securing the cheapest rate - for instance first time buyers who are trying to avoid upfront costs. It's all about offering the customers a choice."

Meanwhile, it was revealed that more than four million people are still paying off their debts from last Christmas.

Figures show that one in ten adults - the equivalent of 4.4million - have not paid off their store and credit card bills from a year ago.

The revelation sparked warnings from financial analysts that consumers risk getting themselves deeper into debt by splurging this Christmas.

Sean Gardner, the chief executive of MoneyExpert.com said: "It is not time to cancel Christmas but for millions of us it really is time to cancel some of our cards.

"We can give into temptation and put it on plastic but if the debt lingers from year to year you're starting to get in trouble."