The credit crisis in the UK has hit the mortgage market hard, so much so that the structure and criteria of mortgages has been forced to change. An arrangement fee has become common place in order to secure a mortgage and, according to uSwitch.com, homeowners are collectively paying an extra £8.7 million as a result of adding these fees to their mortgages.

The research shows that UK homeowners are being charged an average fee of £987 just to set up their mortgage. For those who cannot afford this fee upfront, there is an option to add it to their mortgage, the interest from which, according to uSwitch.com, could amount to more than double the original cost.

According to the study, as many as 2.5 million homeowners who have made the expensive mistake of adding the fee to their mortgage were advised to do so by a mortgage advisor, and almost 900,000 consumers inadvertently had the fees added to their mortgage.

Director of consumer policy at uSwitch.com, Ann Robinson, said: “This is a real catch-22 for consumers who are struggling to find the funds to pay mortgage set-up costs.

“In order to make an informed decision, people must ask the mortgage providers to provide details of the monthly repayments both with and without the fee added on to the mortgage. Consumers should also ask for figures to show the overall impact on the amount of interest paid.” Ms Robinson advised.

The news of the hiked fees comes after last Thursday’s base rate cut to 5 per cent failed to have an impact on mortgage rates. In addition, yesterday’s £15 billion cash injection from the Bank of England has effectively reduced the rate at which lenders borrow (LIBOR) but, as yet this has also failed to filter down to consumers.

Katie Tucker, from mortgage experts John Charcol, said: “The connection between Bank rate and LIBOR has become elastic, and a pull on one end provides no effect on the other. Previous short term cash injections such as this £15 billion have merely brought temporary aid; what the government needs to do is restore the inter-bank lending and resurrect the confidence of investors in the mortgage backed securities.”

Despite the wide spread mortgage doom and gloom, it is the first time buyer mortgage market that has been worst affected. Millions of potential first time buyers have been forced to put their dream on hold as they are repeatedly turned down by mortgage providers.

Chief executive Adam Sampson at housing charity Shelter, said: “Salaries throughout the UK may be rising, but ordinary people are still being priced out of the housing market. Buying a home has now become a distant unaffordable dream for millions of first time buyers, while thousands of others are facing repossession and homelessness.”

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