Mortgage Arrangement Fees

confused_renee

Has anyone ever managed to arrange a discount on a Mortgage Arrangement Fee?

Mrs_Bumble

If you want the particular mortgage product then you have to pay the arrangement fee.

_Andy_

The only time I've ever known discounts is with certain lenders for existing borrowers, but these are clearly published, i.e. you won't get a discount by attempting to haggle etc.

DJ_Mike

Arrangement fees are (one of) a mortgage lenders methods for lowering the apparent interest rate - the rate might be a modestly low 5%, for example, but they're undoing that by having a huge arrangement fee. The difference is that they're required to advertise the interest rate honestly - they don't have to advertise what the arrangement fee is (although they obviously have to disclose this when you go and look at the fine print). You're likely to have about as much luck negotiating a fee as your are the interest rate - i.e. hell might freeze over first!

As a rough calculation, if a lender was offering me a fixed rate of 5% for 3 years with a fee of £1,499, I take their arrangement fee and work it out as a percentage of the loan I'm taking - e.g. £1,499 / £180,000 = 0.8%.

So, roughly speaking, taking that loan would be like having a rate of 5.8% for 1 year, then 5% for the remaining 2 years. Of course, I'm paying that "interest" up front (I'm generally of the mind that you shouldn't add arrangement fees to a loan, otherwise you're letting those build up even more interest which just ramps up the expense).

This is also why some mortgage lenders are much more candid and tell you they're going to charge you 0.5-2% (sometimes even higher) of the loan as an arrangement fee - whatever that value is, is like adding that much to the mortgage rate for a year.

So these fees are mortgage lenders using a stealth route in order to "cut" their rates that they have to advertise. It's all dishonest and I think we'd all be happy if mortgage lenders abolished arrangement fees and used more honest interest rates. But then they wouldn't be able to take a huge up-front payment now, would they?

dunstonh

No evidence that haggling has worked. Although sometimes where errors have occurred, the lender has been known to reduce or waive certain fees.

Most personal arrangement fees are set centrally with no ability for the local branch to waive them. Business arrangement fees are often negotiable.

I think we'd all be happy if mortgage lenders abolished arrangement fees and used more honest interest rates.

Those that are better off with higher fee, lower rate wouldnt agree with you. Lower/no fee but higher rate would suit small mortgages though. Personally, I like the fact that we can choose which we have.

koexelek

Mrs_Bumble wrote: »

If you want the particular mortgage product then you have to pay the arrangement fee.

Agreed.
The lenders are not particularly desperate to lend at all these days, so if you do want to borrow, you very much do it on their terms

DJ_Mike

dunstonh wrote: »

Those that are better off with higher fee, lower rate wouldnt agree with you. Lower/no fee but higher rate would suit small mortgages though. Personally, I like the fact that we can choose which we have.

That really shouldn't be a problem if banks offered the same deal, just through a slightly higher interest rate - my point isn't about the overall cost of a loan, just that fees levy a harsh penalty on people who would otherwise change mortgage providers to continue to get good rates. If you've paid a huge fee up front, you're practically bound to that provider, because if you keep changing, you're just going to rack up even more fees, and that doesn't even take ERCs into account!

I don't believe for a second that we'll ever lose arrangement fees - banks, after all, want to make sure that you're worth their investment in the long term (hence ERCs as well), but it's sad that they can't be more transparent about what you're really paying.

dunstonh

That really shouldn't be a problem if banks offered the same deal, just through a slightly higher interest rate

In other words, you want the product range and options to be dumbed down to a much simpler basis that will see some better off and some worse off.

my point isn't about the overall cost of a loan

the current system is based on overall cost of the deal. So, any changes are going to hit that.

just that fees levy a harsh penalty on people who would otherwise change mortgage providers to continue to get good rates.

At the moment they dont have to pay large fees if they dont want to. However, they can if they want. That is the choice the consumer has to make. Hence why I think your preferred method isnt fair as it removes that choice.

it's sad that they can't be more transparent about what you're really paying.

There are really only three things to compare. How much for setting up, how much you pay monthly and how much you pay on exit. The fees may have different "marketing" names but the end result is the same and very easy to work out.

The fees are currently explicit. That makes them transparent. If you get rid of or reduce the fees and put it into the interest rate that then makes the fees implicit and not at all transparent.

The FSA dislikes implicit fees for simplicity and prefers explicit fees.

Conrad

Mike - how is putting all fees clearly on page 3 of a key features point of sale illustration not transparent?

The money spent on the wages of teachers and bbc David Dimblby's (£1m pa), now that's opaque and I have zero say in the matter.

DJ_Mike

Perhaps 'transparent' is a poor choice of word. When a provider boasts of their 3% rate prominently in their advertising, then you find out later when you delve into the fine details that it's 3% but with a 2% arrangement fee, it just has a habit of annoying me. Ultimately what you want is to get the lowest 'true cost' over however many years you spend paying off the mortgage. Thankfully there are plenty of tools/websites which provide this so I guess the fees/rates argument is fairly moot.

jamesd

DJ Mike, have a read about "buying points". In the UK we don't have an explicit point buying system but it's still available, by having a range of mortgage products with different rates and initial charges.