Mortgage company charge for taking insurance elsewhere

tyr775

My mortgage company Norwich and peterboro building society are trying to impose a £25 'admin' fee on us for opting to take buildings and contents insurance with someone not on their select panel as its cheaper.

Is this legal, i would have thought this was a restriction of choice and at best immoral, but i would seriously question the need to charge £25 for admin fees as i imagine its a box ticking exercise on their behalf. I have never been charged this previously despite having held a mortgage with them before but we are porting the mortage to a new property and its reared its head.

Surely this is akin to overdraft charges, where they need to be real and justified and cover actual expense not just a figure plucked from the ether and applied. How much more work can this be than having it with someone on their panel anyway, none of the panel quotes i obtained was through N&P.

Can someone please advise.

Thanks

Ross

happybroker

Many lenders make this charge and believe it or not very few actually check the policy you take. Some now call it a "freedom of agency" charge.

I would be surprised if you have managed to never pay one of these charges before, it is usually in the small print somewhere.

tyr775

So its common practice then? How do they get away with it though, i don't think these people live in the real world.

I've never heard of a car finance company charging an admin fee for not taking insurance withtheir company, so why should this happen with houses?

Has anyone ever challenged this and if so what was the outcome? I was told this was in my original policy however i never actually got a charge applied to my mortage i know this as i checked my previous statements.

davenkelly

i have just applied for a mortgage and the mortgage advisor was going to charge us a £249 admin fee for NOT taking life insurance etc with their specific company!!!

Naturally we have avoided he charge by taking all the insurances sh said we needed!!!

(i really do sound thick when i read that back lol!!)

tyr775

its exactly this that is the problem though IMO. You were forced to take a policy with them by the ridiculous additional payment. Its a restriction of free choice by imposition of penalties. It shouldn't be legal. I'd love to know a legal persons position on this.

Wakey2008

The £25 charge is in most cases put towards a company block policy that protects the lender in the event of something happening to the security property and you not insuring it properly. By allowing you freedom of market, they cannot ensure that what you take out will be suitable and therefore cover themselves with a small one off fee.

The car comparision is hogwash as car loans are not secured on anything and therefore their is no security to protect.

dunstonh

Surely this is akin to overdraft charges, where they need to be real and justified and cover actual expense not just a figure plucked from the ether and applied

Its nothing like overdraft charges.

So its common practice then?

Go back 10-20 years and all lenders had a rule where you had to get permission and most charged. Its been in decline for many years now with only a small number doing it now.

How do they get away with it though,

Because they publish the charge and it is technically there to ensure that you do get your house insured as they require it. There is also some protection for the lender for those that leave their security incorrectly insured.

i have just applied for a mortgage and the mortgage advisor was going to charge us a £249 admin fee for NOT taking life insurance etc with their specific company!!!

There are no lenders doing that at the moment and they are not allowed to do it. I suspect you are mixing up an advice charge with commission offset. i.e. where there is no commission payable, you pay the charge instead. Quite fair and legal and in fact in most cases it is the best way to do it.

You were forced to take a policy with them by the ridiculous additional payment.

No you were not. You could have gone elsewhere from the start.

Its a restriction of free choice by imposition of penalties.

no its not.

It shouldn't be legal.

Why do you think everything should be free? If that was the case how would the wages be paid?

For reference, I do think this charge is largely obsolete nowadays but the reasons you have given are way off the mark.

davenkelly

dunstonh wrote: »

There are no lenders doing that at the moment and they are not allowed to do it. I suspect you are mixing up an advice charge with commission offset. i.e. where there is no commission payable, you pay the charge instead. Quite fair and legal and in fact in most cases it is the best way to do it.

possibly, (as i am compleetely new to all of this!!)
however we have paid a £149 advice fee, and the additional £249 was for if we didn't take Zurich life cover with our mortgage....the advisor was from reeeds rains, and the mortgage application in through RBS

dunstonh

davenkelly wrote: »

possibly, (as i am compleetely new to all of this!!)
however we have paid a £149 advice fee, and the additional £249 was for if we didn't take Zurich life cover with our mortgage....the advisor was from reeeds rains, and the mortgage application in through RBS

Reeds Rains are tied sales reps of Zurich. What used to be Allied Crowbar. OOps, I mean Allied Dunbar.

You should never use tied sales reps for your advice. In this case, they make their money on the insurances and if you dont buy them, there is not enough on the mortgage to cover their costs. So, they charge a fee to replace the commission.

If you do buy the insurances though they are expensive and it could be false economy doing so.

RufusA

tyr775 wrote: »

its exactly this that is the problem though IMO. You were forced to take a policy with them by the ridiculous additional payment. Its a restriction of free choice by imposition of penalties. It shouldn't be legal. I'd love to know a legal persons position on this.

As others have said it is common place / legal. Most mortgage companies will only charge you the once for it i.e. once you've changed insurers you can change again without an additional charge, but you still need to notify them of the change, and ensure the mortgage company is listed on the insurance documents as an interested party.

It's also worth noting that a large number of insurers offer to refund you / discount / offer in shopping vouchers the cost of the admin fee you pay as an incentive to switch to them.

Therefore you shouldn't be out of pocket!

This is a lot better than the bad old days where you were forced to take buildings and contents insurance with the mortgage company in order to get the good first time buyer mortgage deals!

Rufus.