Jill Insley: The fee-free loan: coming soon to a home near you

Jill Insley: The fee-free loan: coming soon to a home near you

ING direct intends to shake up the home loan market with virtually fee-free mortgages. Its mortgages, a flexible loan with a standard variable rate that will always be less than 0.9 per cent above the Bank of England base rate and a two-year fixed rate set at 4.95 per cent, have no higher lending charge, no telegraphic transfer fee and no exit fees. ING also boasts free valuation and legal fees on remortgages (provided the ING Direct remortgage service is used), while the basic valuation fee is refunded on completion for purchases.

ING's move is welcome. As borrowers have become cannier about switching mortgages in pursuit of lower interest rates, lenders have raised charges to ensure they make a profit. Over the last year lenders' application fees have shot up - £1,500 for a fixed rate is common - with telegraphic transfer fees, exit fees and early redemption fees following suit.

However, borrowers should still shop around to see which mortgage is cheapest overall, including fees. David Hollingworth of mortgage brokers London and Country compared the total cost of the ING Direct flexible mortgage with a Woolwich loan set at 0.19 per cent above base rate for the life of the loan, giving a current pay rate of 4.94 per cent, with no arrangement fee, free valuation and free legal work for remortgage and with no early repayment charges.

Based on a £100,000 interest-only remortgage, the Woolwich product would cost £200 less in interest.....continued below

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a year, easily covering the cost of telegraphic transfer and other fees. The Woolwich charges an exit fee of £275, but as the rate is guaranteed to be at 0.19 per cent above base for the life of the loan, this cost could also be covered by savings.

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