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Have you been stung by fees when arranging a mortgage?

Toy house on coins

Our new research shows that mortgage fees have almost doubled in five years, from £878 in 2009 to £1,588 in 2014. Have you been stung by fees and charges when arranging a mortgage, whether moving house or remortgaging?

Through our campaign to Stop Sneaky Fees and Charges we’ve heard about your experiences of costs being added to your financial products and services.

This can range from insurance fees to admin fees, or overdrafts to credit cards. And our latest research shows that the practice is prevalent in the mortgage market too.

I went through the overwhelming task of setting up a mortgage last year. The experience included an intricate spreadsheet which took into account the range of fees, mortgage terms and other complicating factors alongside the APR for the deals. It was a daunting task, made harder by the sneaky suspicion that all the fees and charges just didn’t appear to be listed up-front in an easier to compare format.

40 types of mortgage fees

Our research shows I’m not alone, and the comments you’ve shared through our campaign are testament to that too. Bob told us:

‘Fees have mushroomed over the past few years. There’s a big difference between when my wife and I bought a house 25 years ago and when our daughter bought a house this year. There were six types of fees on her mortgage – against the one we were charged.’

Our research found 40 fees and charges across the market. These could be anything from set up fees, completion fees, arrears fees and final repayment fees as Eric has discovered:

‘I am expecting some expensive charges from my mortgage company when my mortgage is paid off. This they say is an admin charge to close the account. I feel that I have paid them enough over 25 years and to pay this extra charge is just too much.’

And Casey told us:

‘I’m currently looking for a mortgage deal. The experience is like comparing apples with pears!’

We’re now calling on the Chancellor to end mortgage confusion and use his Autumn Statement to stop sneaky fees and charges on mortgages and make it easier for people to find the best deal. This includes asking for mortgage price comparison to be made easier, to make the full cost of a mortgage clearer, and ensure any additional fees are cost reflective. You can help by supporting our campaign and sharing your experiences of fees and charges in the housing sector with us.

Comments
Profile photo of malcolm r
Member

I’ve just voted to ban “sneaky” fees (or are they charges we just don’t know the justification for?). I would like to know why these fees – particularly arrangement fees – can be imposed at such large amounts. I would have thought the admin cost would be the same with a given provider, whatever the mortgage. On the face of it, it looks like the better deals are offset by high fixed charges, so not so great after all. It may not be so simple, so I would like someone in the industry to explain how they are justified (and perhaps Which? mortgage advisors can help here?).

I have a bit of a gripe with campaigns that ask me to vote for something without providing the information to allow me to make an informed judgement. Just asking us to vote for reduced costs is clearly going to attract support, but there may be reasons that we aren’t told that make it not so clearcut.

Profile photo of Charlotte Fitzgerald
Member

Thanks for your support Malcolm. The cost of the fees is one of the things we’re looking at – ensuring that additional fees reflect lenders’ actual costs.

It’s interesting to hear your feedback on the website too (that’s the part of our campaigns I tend to look after). When we launched the site we ran some focus groups to work out how people wanted information presented to them and what level of detail they required.

On the whole people asked for a simplified version of the campaign upfront and the option to dig in the detail if they were interested in finding out more. That’s the idea behind the ‘Get involved’ and ‘Know the issue’ sections.

There’s some information on ‘Know the issue’ on our campaign asks, and the specifics per financial product/service in here http://www.which.co.uk/campaigns/insurance-bank-card-fees/know-the-issue/. We always welcome feedback on this though and if you ever feel we’ve over simplified, or you’d like a little more detail, please do let us know. Many thanks, Charlotte

Profile photo of malcolm r
Member

Charlotte, thanks for the response. I did look at the “know the issue” site. The mission statement sort of sums up the approach:
“Two thirds of us think that companies use fees or charges to trick us into thinking that the cost is cheaper than it is. We’re calling for all financial fees and charges to be upfront, fair and easy to compare. We want companies to take action and the Government and regulator to conduct a thorough review.”

This is fine – we all want (I assume) to have total clarity in what we will be paying. What I was concerned with was that the charges that will be made are justified. I would like to see explanations for both the need tp impose and the level of these charges (or arguments to show the charges are not justified) and if we are criticising an industry, they should be asked to submit their side of the story. Then we can hopefully see whether there is a “case to answer”.

I would campaign to remove vat from household energy – it is a vital commodity like food and housing. I would expect considerable support. But, at the same time, I should be asking “and where would you like the lost tax revenue to be replaced from” (excluding “not from me” as a reply! 🙂 . In other words, we need to look at a slightly wider picture to reach a sensible conclusion, don’t we?

Member
Jill Turner says:
5 November 2014

Could I suggest thatwhen looking at mortgages, instead of facing the daunting task of operating with spreadsheets to measure charges, fees, those transparently declared or those that get lost in the small print, that you engage the services of a mortgage adviser. Professional advisers will have specialist software that easily compares ALL fees and can give impartial advice to their clients. By comparing and contrasting the different set up fees, exit fees, arrangement fees, completion fees etc your adviser can save you money but also save you time and give you peace of mind.

As a financial adviser I have noticed lender completion fees increase significantly on Buy to Let mortgages in particular. This is due to market forces. There was an exit from the market of many Buy to Let lenders following the banking crisis. Therefore those left, could operate with less competition or greater collusion with some lenders charging a 3% completion fee. These were not sneaky fees they were levied transparently.

Profile photo of John Ward
Member

Is it the case, Jill, that the client would usually be better off even after allowing for the financial adviser’s fee charge or the commission paid by the lender, given that the arrangement etc fees will still be levied albeit the adviser recommends the most favourable bundle?

I consider the computerised comparison of fees payable is the least significant element in giving good mortgage advice as [1] an understanding of the client’s needs and their financial situation, and [2] the competent assessment of suitability of the loan for the client’s needs and financial profile, are far more important and fully justify the adviser’s fee. For that reason I would press for this magic software to be made freely available in the public domain, and I should be interested to hear why it should not be. Perhaps there are risks in letting the public have access to this data, in which case I think we should be told what they are.

Profile photo of kennethraine
Member

Just as a general comment, why should any fee be a % of a transaction? It seems to be such an obviously , exploitive strategy, in order to take advantage of larger monetary transactions. A fee based on a reasonable assessment of work done would be more appropriate.

Profile photo of John Ward
Member

This has always been a bone of contention. It came up again in the Conversations about estate agents. The theory, advanced by the fee earners, is that as house prices rise the percentage fee level falls. They must think we were born yesterday to swallow that.

I wonder who had the nerve to introduce “arrangement fees” – they did not exist when I first became a mortgagor. Once the first lender was seen to get away with it the others swiftly followed, such was the inelasticity of demand at that moment. Now we are stuck with it and even more dubious imposts have quietly crept into the transaction. Of course, all the costs were always there but they were hidden and wrapped up in the overall interest rate. If interests rise again, will the added fees diminish? I doubt it somehow. The professionals call it “transparency”.

Profile photo of malcolm r
Member

There is clearly a cost associated with arranging a mortgage. I believe it is fair to pay this separately – presumably the “arrangement fee” – and treat the ongoing cost (interest plus principal) separately. This surely just requires arrangement fees to be open and fairly assessed. I’d still like to hear from mortgage providers and brokers how these fees are arrived at and justified. Where are Which? Mortgage Advisors in responding to this?

Profile photo of John Ward
Member

I agree with you Malcolm on identifying the various fees and justifying them according to the amount of work involved and administrative costs arising. Nowadays they have cumulatively reached such a staggering level that I believe it is the usual practice to capitalise them so they add to the mortgage value and end up being paid back over the duration of the loan. In softening their immediate financial impact on hard-up borrowers this has made it easier for the lenders to keep them moving in an upwards-only direction and, as a consequence, house-buyers have become inured to them.

Banks have always charged an arrangement fee for a bank loan or to authorise an overdraft and this was more disadvantageous than for mortgage lending because, as a rule, you could only get a loan or overdraft from the bank where you maintained your current account so you were stuck with their fee. At least there is no such restriction on borrowing for house purchase on a mortgage so there should be a competitive market and the prospective borrower should be able to easily see what the terms are and how they are determined.

Member
John Skeer says:
22 June 2016

Footman James request £10 arrangement fee to renew a motor vehicle insurance? There are many other similar things like this out there.

Profile photo of John Ward
Member

I think that is because the company is an insurance broker rather than an insurer. It would also be collecting a commission, of course.

The brokerage fee is liable to 20% VAT which might or might not have been included in the £10 arrangement fee [so it could cost you £12]. Insurance Premium Tax [but no VAT] is also payable on the premium at 9.5% [rising to 10% next year] and will normally be shown separately.