Darling attacks lenders for £2,500 mortgage set-up fees

Lenders are 'taking advantage' of homeowners by charging them mortgage arrangement fees of up to £2,500, the Chancellor said yesterday.

Alastair Darling spoke out as it also emerged that the number of Britons managing to obtain a loan to buy a home has crashed to its lowest level on record.

Figures from the British Bankers' Association revealed that in May just 27,968 loans were made to people wanting to buy a home - a 56 per cent fall on the same month last year.

In the boom years, up to 92,000 mortgages for home purchase were handed out every month.

Record mortgage arrangement fees are putting even more pressure on homeowners.

The 'average' fees for both fixed and variable rate deals have shot up, said financial information firm Moneyfacts.

In January last year, a typical fixed-rate mortgage had a fee of £695. Today, it is £943, up 36 per cent.

Variable rate loans, such as trackers, have risen from an average of £351 to £974 over the same period - a rise of 177 per cent.

An arrangement fee of £2,499 is being charged by Abbey for a five-year fixed rate 7.09 per cent deal on the average £155,000 mortgage. Some banks are even charging a percentage of the loan. For example, two per cent fee on a £200,000 mortgage would result in a £4,000 arrangement fee.

Mr Darling told the Northern Echo: 'Everybody accepts there are costs that have to be met when they change over.

'But I think we have to make sure people are treated fairly and are not taken advantage of through no fault of their own.'

The Chancellor said he might ask the financial regulator to 'pursue the matter.'

But the Financial Services Authority said it does not have the authority to tell lenders how much to charge. The Council of Mortgage Lenders said many deals are 'fee-free', such as the standard variable rate set by most lenders.

Lenders are also charging up to £420 to value a property, said mortgage comparison website Mform. Director Francis Ghiloni said: 'Lenders are being squeezed in the credit crunch and are using fees - and increasingly a variety of fees - to maintain margins.'

There was a £100million rise in detected fraudulent insurance claims last year, up to £575million, said the Association of British Insurers yesterday. There was a surge in the second half of the year, after the credit crunch began to bite.