Things are all going a bit fee-free lately.

Several lenders are taking the initiative to cut down or remove product fees as cash-strapped borrowers plan their next moves in the mortgage market.  And some of these deals are starting to look a bit more worthwhile compared to their fee-paying alternatives.

Take Alliance & Leicester's four year fixed rate mortgage for example. If you opt for the 'standard' version, you get 5.09% but pay £995 up front.  However, forego the fee and you get 5.59% fixed.  Now, that's only a 0.5% premium which isn't catastrophically higher.  The difference on a £100,000 mortgage is around £50 a month.  So it's clear that the fee option is still better value overall; the payoff is within 18 months,  Nevertheless, if you don't have the cash, this is more attractive than many deals with a less modest no-fee interest premium.

Britannia has a similar margin on its fee-free fixed rate mortgages: five years at 5.59%, ten years at 5.69%, both set no more than 0.5% above the rates it offers for applicants paying £999 fees.  Northern Rock's margin on a no-fee mortgage also comes in below 0.5% on most loan-to-value scenarios.

The problem with most of these fee-free deals, though, is that they're not available with low deposits.  So it's clear they are being offered to tempt remortgagers rather than first time purchasers.

Also, why are these options only available on fixed rate mortgages?  This is at a time when tracker mortgages are surging in popularity and fixed rates are pegged a long way over base.  HSBC is one of the few exceptions. A first time buyer with a 25% deposit can get an HSBC fee-free tracker at 3.29% over the Bank of England base rate for the life of the loan.  Tie-ins?  None.  Still, though, if you'd pay £799 in fees, you'd get base rate plus 2.45%.  So that's a less favourable 0.84% premium.  Moral of the story: despite these fairly promising moves, if you want a good overall deal, get a fee!

We're not the only mortgage commentators to feel that the rapid growth of product fees has created an unwanted norm for applicants.

Nowadays, mortgage applicants are almost universally faced with a bill in the region of £1,000 for switching their mortgage.  What's more objectionable is how swiftly they've increased.  In 2006, the average mortgage product fees totalled £514; in just two years, that average almost doubled to £944. For a bit more context, consider that back in 1992 the average fee was just £98 - and there was a lot more work involved in the application process in those pre-internet days.

It seems clear that lenders have collectively jumped on the fee bandwagon so that they can gather their profits sooner on the mortgage deals they issue. An attempt by Alastair Darling to threaten lenders with FSA action on fees was predictably ineffective. The only thing that can reign in this proliferation of fees is a healthy dose of market competition, and so far that's been absent.

But is that finally about to change?

Firstly, fees are coming down for the first time in ages.  According to Moneyfacts, the size of the average fee charged on deals in the last six months took a dip from £944 to £925.

Secondly, a flurry of reasonable fee-free deals are on their way. It seems that major lenders are realising that many customers resent jacking up their loan by £1,000 or more just for applying, and they're finally competing to tempt those customers.

A&L, Britannia and Northern Rock have all introduced fee-free mortgages with a relatively modest 0.5% margin over their equivalent fee-bearing deals.

The Alliance & Leicester four-year fixed rate mortgage, for example, will charge 5.09% with a £995 fee, and 5.59% without.Britannia has fee-free fixes for both five and ten years, at 5.59 and 5.69% respectively, which are set no more than 0.5% above the rates it offers for people paying £999 application fees.Northern Rock's premium for a no-fee deal also comes in at under 0.5% on most loan-to-value scenarios.

However, not every borrower can benefit.  Arguably, the borrowers most in need of fee fee deals - those without a large amount of cash set aside - are the least able to find them.  Big deposits of 25-30 per cent are required for most of the above options.

It's also noticeable that this competition is so far confined to fixed-rate deals, which have higher interest payments to begin with than trackers at the moment. HSBC is one of the few banks to offer a fee-free option on its tracker mortgages. Again though, you have to be a first-time buyer with a 25% deposit to get one. How many of those are there?

Conclusion: it's great that there's some competitive activity on fee-free deals, as it might start to challenge the hegemony of four-figure fees. But lenders will have to go a bit further if they're going to provide options for the majority of applicants.

Customers with the lifetime option on A&L tracker mortgages may have the best outcome of the 'zero percenters' mentioned yesterday.

Alliance & Leicester was one of the lenders offering customers a discount tracker at below base rate during 2007.

And whereas Halifax, C&G and Abbey mortgage customers face (admittedly mild) payment shocks – jumps of around 3 to 4 per cent interest – it turns out that some A&L customers will be sitting pretty on 1.49% for a while yet.

Clairvoyant customers, perhaps. You see, an option on Alliance & Leicester's two-year tracker deal allowed borrowers to choose to continue on a lifetime tracker at only 0.99 per cent above Bank Of England Base Rate. 

At the time, when 0.29% trackers were available and the base rate was 5%, this might not have seemed such a desirable move.  Hence 'clairvoyant'.  Those customers were either capable of seeing what was coming, or... hmm. A thought occurs.  You don't suppose they might have been talked into it by an A&L sales adviser, convinced that they were pulling a good move for the bank at the time?

Either way, the 0.99% tracker remains significantly below A&L's standard variable rate of 4.99&, and likely to be more competitive than any mortgage deal available on the high street for a while yet (compare HSBC's headline-stealing 1.99% tracker).  And this select band of borrowers won't have to pay exit or arrangement fees in order to end up on this envy-inducing deal.

Moral of the story?  Predicting interest rates too far ahead can make losers or winners out of any of us!