Homebuyers already stung by higher mortgage interest rates are suffering a double whammy as lenders have increased loan fees during the credit crunch.

Some of the best deals now have arrangement fees of up to £12,000.

The average fee on a three-year fix has nearly doubled in the past year, rising from £578 to £1,132, according to figures from the mortgage website, mform.co.uk.

The average fee on a two-year fixed-rate deal has soared from £999 to a whopping £1,478.

Some table-topping deals now have uncapped fees, which were previously a feature only of the buy to let market.

West Bromwich building society, for example, has a two-year fix at 5.19% with a 2.5% fee. On the maximum loan of £500,000 this would cost £12,500.

With 116,000 people a month coming to the end of their fixed mortgage deal this year, the fee increase is going to come as a “nasty shock”, said Francis Ghiloni, Mform’s marketing and business-development director.

Many borrowers – especially first-time buyers – are so strapped for cash that they are adding these fees to the loan.

About 8m people do this, according to figures from uswitch.com – 900,000 without realising it, and 2.5m of them having been advised to. Without paying the fee off earlier than the loan itself, you are storing up a major cost for yourself.

For example, if you added West Brom’s £12,500 fee to a £500,000 mortgage, it would cost an extra £1,800 in interest over two years. Over the term, it would cost an extra £13,440 or £25,940, according to L&C Mortgages.

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

“In fact, by allowing consumers to add fees on to the mortgage, it could be argued that providers are doing them a good turn. This is particularly true for first-time buyers where it could mean the difference between getting on the property ladder or not.

“However, adding fees to a mortgage means that you will be spreading the amount over many years and paying interest for the pleasure of doing so – this is an extremely expensive option and should always be seen as a last resort.

“If you can manage to pay the fee upfront this will always be your best option. Otherwise buyers should make sure that they make regular overpayments to minimise the impact of high interest costs – as they could end up doubling the original cost of an arrangement fee.”

Meanwhile, some of the country’s biggest mortgage lenders are getting tough on borrowers with mortgages of more than £500,000. If you are remortgaging a loan for more than that, you may have to split between the lender’s cheap two-year deal and their standard variable rate for the amount above £500,000 – or find a smaller lender that will go higher.

Halifax, Britain’s biggest mortgage lender, is now offering no more than £500,000 on its two-year fixed-rate products, down from as much as £7.5m. Abbey will lend a maximum of £550,000 on its two-year deals.

Melanie Bien, a director at independent mortgage broker Savills Private Finance, said: “For Abbey on its Flexi Plus range, you now have loan limits of either £300,000 or £550,000. You used to be able to select rates for loans of £550,000 or up to £7.5m.

“Woolwich imposed a £1m maximum on selected rates in mid-February. You used to be able to borrow up to £2m. Woolwich does offer an alternative list of rates if you do want to borrow more than £1m, but rates are higher.”

Bien added that although Halifax has reduced its higher lending limit on some deals, “you can go to Bank of Scotland for larger loans”.

For example, Halifax and Abbey have two-year fixed-rates of 6.19% and 5.99% respectively, both with fees of £999.

However, they are capped at £500,000 and £550,000 respectively. Suppose you had a loan of £750,000 and wanted to remortgage with Halifax.

You would have to take the full amount on 6.39% with £499 fee which is available up to £7.5m, rather than the 6.19% deal. This would cost £5,000 a month, or £120,800 over the two years.

Alternatively, you could take a rate at 5.59% from Bradford & Bingley with £999 fee which would cost £4,646 a month or £112,500 over the 2 years.

For trackers, Abbey has a rate at 5.94% up to £550,000 with a £999 fee, but the remaining £200,000 would have to go on its standard variable rate at 7.09%. This would give monthly payments of £4,949, or a total cost of £119,765.

Again, Bradford & Bingley has an alternative at 5.54% with £999 which would accommodate the whole loan. This would cost £4,624 a month and £111,965 overall.

Lenders are looking to reduce the risks they are taking in any way they can, and that means that you need to have a bigger deposit now than you would have done previously.

Richard Morea, of mortgage broker London & Country, said: “It is about the loan-to-value as well as the size of the loan, and if you need a large loan you are going to need a handsome income for a cheaper one.

“The lender does not want to have all its eggs in one basket.”

Ghiloni said that there were still good deals out there for people with strong credit ratings and with substantial deposits or equity in their home.

He added that the best “true-cost” mortgages available included two-year fixes from West Bromwich building society, Cheshire building society and HSBC at rates of 5.49%, 5.99% and 5.54% respectively.

A LIFETIME TO PAY

For first-time buyers Kate Rosser and James Huntley, there was no option but to add their mortgage fees to their loan. All their extra cash had been eaten up in surveys, and valuation and solicitor’s fees.

The couple, both aged 24, pictured left, bought a £250,000 one-bedroom flat in East Dulwich in December, and had to raise a £25,000 deposit with the help of her parents to secure the loan with Bank of Ireland.

Rosser, a partnerships executive for an online company, said: “We did not have any cash left over to pay the fee. It was very difficult for us because the wages we are on meant that we had to get five times our joint income and a 10 per cent deposit.

“I did not really know there was a fee as our broker did not mention it until the end of the process, and then he said ‘you can add that to the loan’, so we did. We had no option.”