Which?: 99.5% of borrowers do not understand true cost of mortgages


Which? is demanding lenders take action on mortgage fees after damning research shows 99.5 per cent of borrowers do not understand the true cost of mortgage deals.

Which? says lenders must be more transparent so borrowers can more easily compare total costs and not just headline rates. It also calls on lenders to explore alternatives to the APR and warns high fees can damage competition.

The consumer champion says the number of arrangement fees has risen dramatically in recent times. Of the 28,000 mortgage deals on the market, 22,680, or 81 per cent, have set-up fees.

Moneyfacts data shows mortgage arrangement fees have risen by around 66 per cent to an average of £1,506 in the past two years.

Which? asked 1,001 homeowners and homebuyers to rank five two-year fixed rate mortgages in order of total cost over the two years including monthly payments and fees, based on a £100,000 deal.

Only five people, or 0.5 per cent, correctly ranked all five mortgage deals in the correct order, and just 27 per cent could identify the cheapest and most expensive deals, despite half saying they found the test easy.

Only 30 per cent of people who have remortgaged, and 25 per cent of those who had bought their first home in the past five years, correctly identified the cheapest and most expensive mortgages, compared with 22 per cent of potential homebuyers.

In a separate survey, just 29 per cent of people who took out a mortgage recently said the total cost is important, compared to 52 per cent who said the headline interest rate was important.

Which? executive director Richard Lloyd says: “While it is good to see lenders now offering lower interest rates, mortgage arrangement fees have risen dramatically in the last two years making it increasingly important for borrowers to understand the overall cost. Our research shows that even people who already have a mortgage struggle to recognise the cheapest deal.

“Lenders should be more transparent about the true cost of mortgages so that borrowers can more easily compare deals and find the best one for them.”