Are mortgage arrangement fees legal?

el_flaco

The various bank account and credit card account charges have to be related to the administrative cost they incur on the financial institution -by law. However when it comes to mortgage deals it seems FI's can charge what they want. What's the difference? Would it not be far better if the set-up fees were related to the cost of setting them up, which would mean a mortgage deal of 2 years or 5 years would have the same set-up cost, and it would be far easier to compare mortgage deals. It seems all these various mortgage deals have been created to obfuscate the real cost to the consumer, and most of us find it very hard to work out what is the best deal.

Can we start up a campaign to simplify and get rid of these set-up fees which are unrelated to the cost to the FI?

_Andy_

If you don't like arrangement fees go for a fee-free deal.
there is nothing illegal about them. You're not pay for the cost of setting up the mortgage, its the funds/rate you're paying for.
Presumably you'd be happy with no fees and much higher rates?

_Andy_

Forgot to mention - the comparison above is flawed as arrangement fees aren't a penalty charge.

MarkyMarkD

Doubtless you could organise such a campaign. But it would be stupid to do so.

It is NOT that hard to compare mortgages on a total cost basis over the tie-in term - and that is the only sensible method of comparison. There are a number of websites which will do this for you.

I don't see why valid competition between providers should be banned, simply because some people are too lazy to work out the true cost of a mortgage properly or are unable to use the internet OR a mortgage adviser.

I also don't see why people think that it makes sense to make what is one of their most critical and expensive financial decisions, on the basis of a bit of guesswork about best value. Use an adviser if you can't work it out for yourself.

FraudBuster

Are mortgage arrangement fees legal?

Are you suggesting that Government owned Banks are acting illegally?

Write to your MP. They will sort it out.

opinions4u

el_flaco wrote: »

The various bank account and credit card account charges have to be related to the administrative cost they incur on the financial institution -by law. However when it comes to mortgage deals it seems FI's can charge what they want. What's the difference?

One is a penalty charge. One isn't. That's the difference.

Would it not be far better if the set-up fees were related to the cost of setting them up, which would mean a mortgage deal of 2 years or 5 years would have the same set-up cost, and it would be far easier to compare mortgage deals. It seems all these various mortgage deals have been created to obfuscate the real cost to the consumer, and most of us find it very hard to work out what is the best deal.

Arrangement fees actually better average out the profit margins to a provider. Which effectively seems to be what you're asking.

If you're trying to compare deals, do some simple maths.

Fees + cost of monthly payments for the period of deal. It really isn't too difficult.

(just make sure the deal is the same length of time).

Can we start up a campaign to simplify and get rid of these set-up fees which are unrelated to the cost to the FI?

You can. I think the current system together with choice in the market place means that an individual can find deals that are best suited to their circumstances more easily.

Once you start introducing price controls in to a free market you invariably push out competition and increase cost to the consumer. It's a flawed idea.

dzug1

opinions4u wrote: »

One is a penalty charge. One isn't. That's the difference.

.

mmm no - the courts have ruled that bank charges are NOT penalties.

They have still to rule whether fairness rules apply - if they do it's not necessary for them to be directly related to cost.

dunstonh

I think televisions that cost over £500 should be classed as unfair because I can buy a television for less than £500. That MUST mean all these expensive televisions are illegal. Bank charges are so expensive televisions must be.

That is effectively what you are claiming when you say mortgage arrangement fees are unfair.

Can we start up a campaign to simplify and get rid of these set-up fees which are unrelated to the cost to the FI?

And that will reduce consumer choice and make mortgages more expensive for a good proportion of people. Hardly the sort of thing that is the objective of this site or any consumer driven campaign.

If you dont want a high fee/low rate mortgage then by a fees free or low fee mortgage with higher rate.

[Deleted User]

Your original post makes no sense: you're essentially arguing that every product or service should be offered at cost price.

Set-up fees are not a penalty charge. They're a fee for a service. As such, lenders can charge whatever they like; you are a free-thinking consumer and you can vote with your feet, so if they're too high, go somewhere where they're cheaper.

[Deleted User]

dzug1 wrote: »

mmm no - the courts have ruled that bank charges are NOT penalties.

They have still to rule whether fairness rules apply - if they do it's not necessary for them to be directly related to cost.

You're getting your terminology confused. The FSA (via the banks) have (almost) ruled that bank charges are unfairly punative. They may not be a penalty per se, but they are punative, which is where their jurisdiction lies.

e.g. the costs must be FAIR and not punative. By being unfair, they are being punative.