Building Society mortgage `arrngement fees`

MarkyMarkD

dunstonh wrote:

Often, the margins may not be far off the arrangement fee and redemptions as a high proportion keep switching their mortgage.

No, the lenders' profits are far worse than that in the circumstances you describe.

If you take any "best buy" fixed rate mortgage, the rate the borrower is paying is LESS than the lender is getting the money for.

And out of the arrangment fee and mortgage redemption fee, they have to pay their staff, they have to pay the intermediary if there is one, and they have (supposedly) to make some sort of return on their capital.

If borrowers remortgage and leave the first day they are free to do so, almost all lenders actually lose money, certainly on their fixed rate mortgage products.

Which is part of why the idea that arrangement fees are somehow illegal or immoral leaves me cold ... they are a means of facilitating loss-making interest rates on the loans.

The main reasons fees have risen over recent years is that borrowers' propensity to remortgage the minute they are free to do so has increased dramatically, meaning that there is no money to be made other than through fees. In other words, what customers gain through their increased awareness they are paying through increased arrangement and redemption fees.

Another way of putting it, is that the more astute borrowers were previously dramatically subsidised by the dopier ones who stayed on their lender's SVR for a long time. Now, there are far fewer dopier ones, so the astute ones don't get as much subsidy and pay more for their loans.

In other words, MSE has cost those who were astute anyway money!

Gorgeous_George

Well put MartkymarkD

And of course, with mortgage advisers churning mortgages, someone has to pay for the advisers. It's not the building societies andf banks that pay, it's the customers.

Just like utility company switching. The customer thinks he ha saved a couple of quid when, in reality, he's only put the costs up for the suppliers and made the middlemen handsome living.



GG

dunstonh

The same situation currently exists with car and household insurance. Whilst the actual premium has come down in real terms, the costs of administration has gone up (i.e. change of address costs etc). Insurers are also losing money on these as they chase customers through churning.

Its all unsustainable.

horace_2

> dunstonh,

I think it is called `Consumer Revenge`.

The Insurance companies would, if they could, screw Mr Punter left right and centre. They are not amused when Mr Punter fights back.

BTW do you not, as a Financal Advisor, make a canny screw out of churning?

h

dunstonh

horace wrote:

> dunstonh,

I think it is called `Consumer Revenge`.

The Insurance companies would if they could screw Mr Punter left right and centre. They are not amused when Mr Punter fights back.

BTW do you not, as a Financal Advisor, make a canny screw out of churning?

h

Much of what I earn comes from "churning" as I am an investments adviser. That means you are moving money from one thing to another. A fair chunk of that comes by taking over investments and portfolios which are failing and re-investing them to a more appropriate spread.

The difference is that I am an not a product provider and I use the products which may be cross subsidised to best effect. I work for the client and not the provider. So, if a deal is loss making to the provider, I don't care as long as its not dangerous for the client.

There has to be a sensible level of affordability. At present that doesn't exist with some financial services products. The bubble will burst at some point. Maybe a few insurance companies will go bust and people will be happy to pay more for a for a more financially secure company. Who knows? But at the end of the day, a profit needs to be made and loss making cannot continue forever.

jamesd

Gorgeous George, so long as there are new mortgage deals that make it pay for consumers to switch, consumers will switch and mortgage brokers will make money by saving consumers money.

MarkyMarkD, maybe the UK will move to a system like the US buying points system where consumers are explicitly paying more up-front for lower interest rates. Maybe with the option of buying them with an explicit loan added to the mortgage that is repaid over n years and with a balance that must be repaid if the mortgage is ended early. Same effect as the direction the UK system is currently moving in but it avoids the non-transparent messiness of trying to work out what are penalties and what are costs of the deal.

ossie1_2

I can't believe the amount of interest/comments over such a statement as that which was made in the first place.

Firstly, I take my hat off to all the advisers who have commented here who work in the most regulated, competitive marketplace in the country. You have generally all backed up the lender's who, quite rightly, offer freedom of choice in a democratic state by giving people options to buy products which are most suitable for themselves.

Lenders' are neither crooked nor do they attempt to be misleading. Too many complaints and problems would occur if they were. They offer a choice and Joe public can choose - where is this complicated, misleading, illegal or inappropriate. What you see is what you get.

Lender's also have to make a profit. Why else would they lend you money? As with one previous comment, awareness in this country is far greater than ever before so the majority of borrowers look to improve their rates as soon as they are able. This is one reason that products have fees, whether they are arrangement, application or anything else for that matter.

I am a bit disillusioned at the comment by one member regarding those people who make mistakes and incur an unauthorised overdraft. They are not stealing. Whilst it is unauthorised the banks have a review policy in place whereby they decide when an item is presented to them for payment whether to honour it. If they do, they charge you a higher rate of interest and there is normally an unauthorised overdraft borrowing fee incurred. This is the bank's choice. If they are not happy, they will not pay it. This is not stealing. Reclaiming of bank charges is down to the banks for years consistently charging fees which are inappropriately high in relation to the incident they are being charged for. Ie, £35 for returning a cheque unpaid. ( Proven by experts to cost generally no more than £4 ) It has been stated legally that it is unlawful for banks to profit from such charges and that is why there are so many claims going on.

In this area, I hope that the banks do have problems going forward with this area. I can imagine how difficult it would be if some of the big ones only made £8 billion profit instead of £10billion, couldn't you.

Lastly, it is interesting to see references and comparisons to other retail stores, such as sainsburys, waitrose, tescos, etc. All companies, whoever they are, have one overriding objective. To make a profit. They all have costs involved in bringing a product to the market. How they show these costs varies greatly depending on the industry you are in. Who cares how they do this as long as you understand what the bottom line cost is going to be. 15pence for an apple, £200 for a television, 4.99% for a 2 year Fixed Rate Mortgage with no extended tie ins and a £499 arrangement fee.........

Good luck to you all. Hopefully one day the world will be a happier place and everybody will have nothing to complain about!!!!!!!

AndrewSmith

If you dont like the fees attached to a specific product, find a different product. Simple as that.

You have the choice of paying it and taking the product or not paying it and taking a different product.

Competetive pricing and price differentials occur all over the high street on virtually every product or service you can get. As an arrangement fee is an explicit fee charged at the outset with your full consent or agreement then you have absolutely no basis on which to claim it as illegal.

You have the choice whether to pay it or not.