First-time Buyers Caught by Rising Mortgage Fees

By: Luke Ashworth

Major UK lenders are now charging buyers an average of ?2,000 if they do not have 10 per cent of the property's value as a deposit for a down payment. The 'higher lending charge' will raise over ?220 million for banks and building societies in 2007 alone and will affect over 100,000 borrowers. This is not just from mortgages but also remortgages.

However, lenders debate that the charge is just a means of protecting themselves against the higher risks associated with buyers with small deposits. But critics have condemned it as another way for banks and building societies to squeeze money out of their customers. With first-time buyers paying an average of ?145,000 on their property, they could end up spending ?5,500 on higher lending charges and stamp duty alone.

Furthermore, most lenders will also look at your disposable income when lending you money and will take into account your existing loans. This could make it nearly impossible for you to take out a mortgage that you could reasonably pay off. Looking at disposable income is also a factor when considering remortgages. It is also possible that with house prices being so high, you may need some help with getting together a deposit.

You may find a few lenders who will look at 'lending you a deposit' as part of the overall mortgage package. However, a major disadvantage of this could be if the value of your property falls, you may find yourself in negative equity. This means that you could end up owing more than you borrowed. Furthermore, mortgage fees have been criticised in recent months for making the cost of buying a home more and more expensive. The average 'arrangement' fee, the charge for taking out a home loan, has nearly doubled in just three years.

At the beginning of 2004 the average fee on a fixed rate mortgage was just ?334. Currently the average fee is now ?611, that's an increase of 83 per cent. To make matters worse for first-time home buyers, London is now the most expensive city in the world to buy a house. Research by the estate agent firm Knight Frank has found that property prices in the most exclusive areas of the UK capital are even higher than those in Monaco, New York, Tokyo and Sydney.

The average cost of a prime central London property is now ?2300 per square foot with the most expensive areas such as Belgravia and Knightsbridge, exceeding costs of ?3000 a square foot. As house hunters across London struggle to find a property they can afford amid a shortage of stock and booming demand, the crisis has become even more critical in recent months as wealthy foreigners and huge City bonuses continue to drive prices ever higher. The rise in property prices is leaving many key workers, such as teachers and nurses, and first-time buyers unable to get onto the housing ladder.

Foreigners were responsible for 59 per cent of prime London sales this year alone. This has also driven up the costs of renting a home in the capital. With the average house prices coming in at just under ?200,000, the deposit that will need to be raised by the average homeowner is almost ?20,000 pounds plus fees and charges. And with wages averaging in at a little below ?30,000 (especially when it comes to key workers), it could take young property enthusiasts years to save up the capital. In that time, house prices, if they continue to rise at the current rate, could be well on their way to starting at ?250,000.

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