High price for no-fee mortgage

Borrowers tempted into taking out a supposedly attractive fee-free mortgage could end up paying over the odds.

Analysis from price comparison website moneysupermarket.com shows that fee-free mortgage offers are more expensive than deals with an application fee for consumers with a mortgage of 57,000 or more.

This is because the interest rate is usually higher. With the average new loan just under 140,000, opting for a fee-free deal could cost many homeowners dear.

Based on a mortgage of 56,000, someone taking out a two-year fixed-rate deal with Nationwide at 4.47 per cent would pay 5,006 in interest in the first two years.

Add the fee of 1,499 and the overall cost is 6,505. Portman has a fee-free two-year fixed-rate scheme at 5.35 per cent, which would cost borrowers only 5,992 in interest.

A borrower with the UK average mortgage of 138,000, taking out Nationwide's two-year fix at 4.47 per cent, would pay 13,836 including fee. If they opted for the fee-free Portman deal, it would cost 14,766.

The bigger the mortgage, the more money you save by choosing a low-interest mortgage with a fee rather than a fee-free deal. Louise Cuming, head of mortgages at moneysupermarket.com, says: "Fee-free deals are not all they are cracked up to be. Doing a bit of homework could expose the pitfalls of such deals."