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Mortgage rates hit nine-year low

But banks are charging borrowers higher fees in a bid to boost their margins

Mark Carney, Governor of the Bank of England at Inflation Report
Mark Carney, the Governor of the Bank of England, has indicated interest rates will not rise any time soon

Interest rates on mortgages have hit record lows, but borrowers are being slapped with higher fees as banks look to protect their profit margins, data from Moneyfacts.co.uk suggests.

The average interest rate on a two-year fixed mortgage fell to 2.52pc in February, down from 3.14pc a year earlier and the lowest level since Moneyfacts.co.uk, which compiled the data, began monitoring the sector in 2007.

It comes after Bank of England Governor Mark Carney indicated that interest rates are going to stay lower for longer than expected, with a rate rise now forecast for 2017 at the earliest.

The number of mortgages approved for house purchases rose to an eight-month high during March - House prices fall fastest rate 19 months
Low interest rates are supporting the hot housing market in the UK, despite worries over affordability for first-time buyers

But while interest rates might be falling, banks are putting up the fees they charge borrowers to arrange a loan.

The average fee on a fixed-term loan has risen by 4.2pc over the past year to £964.

“The current mortgage market boasts some of the lowest rates on record, which is great news for borrowers, but the increase in the average mortgage fee clearly shows that some of these headline grabbing rates are being compensated for elsewhere,” said Charlotte Nelson, from Moneyfacts.co.uk.

“Some of the fees borrowers are being asked to pay are nothing short of shocking, with up to £7,499 being charged for some high value loans.

"While arrangement fees allow lenders to offer a lot more flexibility with the types of mortgages they offer, the cost of administering the mortgage does not vary that greatly from one case to the next, which could lead many to wonder why there is such a big difference between the fees charge and why they are even charged in the first place.”

Meanwhile, returns on deposit accounts have declined, heaping further pressure on savers. The average rate on a fixed-term savings product dropped to 1.32pc in December, from 1.5pc a year earlier, according to data from the Bank of England.

In 2007, savers were enjoying interest rates of as high as 5.89pc on their deposits.