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Increasing mortgage fees offset by lower interest rates

17 Aug 2011

Office of National Statistic (ONS) data released on Tuesday showed that fees from financial services added to CPI (consumer Price Index) inflation in July 2011, increasing 1.1% between June and July. 

Mortgage fees have been highlighted as the culprit. 

However mortgage fees are often used by lenders to manage down a mortgage rate, (with borrowers of larger mortgages happy to pay a higher fee if it lowers their monthly interest costs), and are as intrinsic to the cost of borrowing as the mortgage interest rate itself.

Yet mortgage interest rates are excluded from CPI, whilst product booking fees aren't. In the ONS's statistical release for July, it actually pointed to mortgage interest costs having a downward impact on inflation.

Evidence of this can be seen in fixed rate deals hitting their lowest rates ever in July, with the likelihood of a base rate rise moving further into the distance, five year fixed rates fell below 3.5% during the month.

Indeed, the retail price index for July, which includes both financial services fees and mortgage interest costs showed that inflation was flat on the month.

Which raises the question if mortgage interest costs are excluded from CPI, maybe mortgage fees should also?

Martijn van der Heijden, head of lending at HSBC commented: "The overall cost of borrowing for homeowners continues at historically low rates, and HSBC is conscious that borrowers have different priorities when it comes product booking fees. We accommodate this by offering a range of loans, some with, and others without fees. Ultimately the choice is there for borrowers and in the first half of 2011, 30% of HSBC customers opted for a zero fee deal with half of first direct customers having chosen one following their launch in July."

The availability of Zero and fee-free offers is seen as a reason for HSBC being the only major lender to grow gross lending and market share in H1 2011.

For further information please contact Amanda Brown on 01132766700 or amanda.brown@firstdirect.com and Rebecca Hirst on 01132766899 or rebecca.hirst@firstdirect.com 

>ends<

Notes to Editors

ONS data

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