Arrangement fees for taking out some mortgage deals are now so expensive that you might need a mortgage to pay them. The average fee is now ten times higher than it was 16 years ago, research for The Times has revealed.

In 1992 the average fee on a two-year fixed-rate deal was only £98, according to Moneyfacts.co.uk, the price comparison website. It is now a hefty £968. The bulk of the increase occurred between 2006 and last year, when the average fee for taking out a deal almost doubled from £514 to £937. But in the past year the average rate has continued to rise alongside increases in interest rates.

Mortgage experts say that some lenders could be profiteering from the credit crunch. Recent increases to the cost of setting up a loan have pushed up fees to as much as £10,000 for a £500,000 loan with Alliance & Leicester or HSBC. Such vast sums have caught the attention of the Chancellor of the Exchequer, who says that any lender charging a fee that appears to be unfair will be punished.

But what exactly is fair? Lenders insist that the fees are necessary to cover the cost of the work done to set up a mortgage. Yet mortgage experts point out that the process of setting up a loan has become easier since 1992. Michelle Slade, of Moneyfacts.co.uk, says: “Many of the banks now have automated valuation models, which cut out the need for a surveyor. Credit scoring is also easier. In 1992 a bank manager would have used his or her discretion, but now a computer does the work. Technology has moved on since 1992, so the process will be much more streamlined.”

Mortgage brokers, meanwhile, complain that the range of different fees is increasing and becoming more confusing. Some lenders, including HSBC and Clydesdale Bank, do not charge any fees on some deals, while other lenders will add thousands of pounds to the same type of loan.

In addition to typical arrangement fees, other fees that you could be charged include a non-refundable application fee of £99, from Cheltenham & Gloucester, which is still payable if the application is rejected. Abbey, meanwhile, imposes a £150 upfront rate-booking fee, which is subtracted from the final arrangement fee if you take the deal. The £150 will be refunded if your application is rejected, but Abbey will keep the money if it offers you a loan and you change your mind.

A relatively new “mortgage account fee”, which lenders say is designed to cover the cost of administering a loan from start to finish, looks set to become more widespread after Halifax started charging borrowers £225 for one of its mortgage accounts two weeks ago. Alliance & Leicester and Abbey already levy the fee, at £295 and £225 respectively, which is on top of arrangement fees but payable when the borrower switches to another lender or pays off the loan.

Although customers are told about these fees in advance, the justification put forward by lenders - for example, the cost of extra services such as duplicate statements - is questionable. Melanie Bien, of Savills Private Finance, the broker, says: “Halifax says that it covers the cost of duplicate statements, but how many people ask for those? Why should new borrowers be penalised because some people lose their mortgage statements and need new ones? And how much does it cost to produce a duplicate statement?”

In most cases, a large arrangement fee would not stand in the way of your taking a deal because, with the exception of HSBC, all lenders allow you to add the fee to the mortgage. However, this means that you will end up paying more interest over the long term.

Ray Boulger, of John Charcol, another broker, says: “In nearly every case, you can add the fee to the mortgage, so you do not need the money upfront. But if you do this, it increases the amount of interest and therefore the total amount owed goes up.”

Percentage fees on deals, including some from Bristol & West and Alliance & Leicester, are particularly contentious because the work done to arrange a mortgage is the same no matter what the size of the loan, yet the bigger the loan, the higher the fee. Darren Cook, of Moneyfacts.co.uk, says: “If a lender charges a fee of 1 per cent, a borrower with a £100,000 mortgage will pay £1,000, while a borrower wanting a loan for £500,000 will have to cough up £5,000, even though the lender is doing the same work.”

Mr Boulger says that it is important to remember that if the rate is low enough, a deal with a big fee can still be the most suitable option. “Having a lower interest rate can improve monthly cashflow,” he says.

Price comparison websites allow borrowers to work out the true cost of a deal over the term, taking into account both the rate and the fee.

Ms Bien says: “The total cost of all fees plus the interest rate should be calculated when comparing one mortgage with another. You may assume that lenders would charge the same fee for running or closing a mortgage account, but this is simply not the case. Fees vary considerably and lead to charges of profiteering for the worst offenders.”