mortgage lender fees – BBC watchdog

Mortgage Lender Fees

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Mortgage Lender Fees and Watchdog

Once again this week BBC Watchdog is gnawing at mortgage lenders ankles – this time on the subject of fees.

The programme stated that mortgage arrangement fees had risen by 70% since 2008. The view of the members of the public interviewed seemed to be that mortgage lenders do not appear to do anything to earn their fees.

What is the real story from here on the ‘coalface’?

The first thing to do is to differentiate between mortgage lenders fees charged on buy to let mortgage products and fees charged on residential (owner occupation mortgages). In general buy to let mortgage fees are considerably higher, often a percentage of the loan and some mortgage lenders charge 3% of the loan or more on some products.

One point to remember is that buy to let investors can offset the cost of the mortgage fees against their income tax. Therefore a £2,000 fee has a net cost of £1,200 for a higher rate tax payer.

Residential mortgages are priced differently and the vast majority have a flat mortgage fee applied rather than a percentage fee. By far the most common fee applied to current mortgage products is £999, and the example used in the programme of a £1,995 fee on a £100,000 mortgage was a little extreme.

For a large ticket mortgage, a higher fee with lower pay rate can still be attractive as was the case with one of our clients a few weeks ago who paid a £2,495 fee to Nat West to access a market leading fixed rate on a £390,000 loan.

The Autumn initiative by the Bank of England to make more money available to the banks has no doubt had a big influence in the price wars of recent weeks. This has brought some competition into the market for those with 25% deposit. We would agree that lenders often use low pay rates to attract customers and leave the fees in the small print and that is a shame. We also see them advertise rates for a short period and then tell applicants that the rate has finished once they are through the bank’s doors.

So what is the answer?

It often depends on where you live. Those in the South East who often borrow over a quarter of a million pounds can afford to pay a £2,000+ fee to shave half a per cent off of their mortgage rate.

A borrower in the North is unlikely to need a mortgage of the size necessary to justify such a fee, and for those seeking mortgages in five figures even a £999 fee has a big impact.

The important thing is not to rush ahead blindly if you see a low pay rate advertised. Make sure you understand all the fees involved and always have an independent mortgage broker consider the whole of the mortgage market for you before you take action.

As to the question of whether lenders earn the fees they charge? We will leave you to decide.

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