Mortgage arrangement fees - can they be avoided?

bikerman_2

I am considering buying a house with my girlfriend in the near future, probably borrowing around £175k over 21 years and putting down a 10% deposit. Borring the money doesn't appear to be a problem based on our circumstances but all the mortgages I've checked so far ( different lenders and either fixed rate or variable repayment ) are asking for an 'arrangement' fee of between £500 and £1000.

Given that the lender will make a lot of profit from the interest we are going to be paying I have a real problem with the principal of having to pay an arrangement fee. Question is does anyone have any experience of negotiating away these fees or does any lender spring to mind who will lend £175k on a joint income of £45k with no debts to service without asking for an arrangement fee? Thanks in advance.

andrewbrydon

Yes there are a number of lenders who will not charge a fee
However the rate will be higher
Example
Fixed rate of 5% with £699 fee on repayment over 25 years £175k - 1023 pcm
Fixed rate of 5.8% with no fee on repayment over 25 years £175k - 1106 pcm

£83 per month more. Total extra paid over 2 years £1992 so look again at the fee if I were you

Andrew

MrMoo123

Just out of interest which Lender was this?

MarkyMarkD

bikerman wrote:

Given that the lender will make a lot of profit from the interest we are going to be paying I have a real problem with the principal of having to pay an arrangement fee. Question is does anyone have any experience of negotiating away these fees or does any lender spring to mind who will lend £175k on a joint income of £45k with no debts to service without asking for an arrangement fee? Thanks in advance.

As my post #25 in this thread: http://forums.moneysavingexpert.com/showthread.html?t=360234&page=2 shows, you are wrong to think "the lender will make a lot of profit from the interest we are going to be paying". As many people do, you are confusing the fact that you will be paying a lot of interest, with the fact that the lender will be making a lot of profit. The two are not necessarily linked.

The only way the lender is going to make a lot of profit from the interest you are going to be paying is if you:

(a) choose a duff mortgage in the first place; or
(b) stay with a mortgage after its rate changes from "good" to "duff".

Mortgage arrangement fees are not negotiable; they are a feature of the product and they are set at the level they are in order to enable the lender to offer loss-making interest rates.

As Andrew posted previously, you can get products without arrangement fees if you want them, but the rate won't be as good.

And for anyone borrowing £175k, a fee-charging product is almost always going to be far better value than a "no fees" one - the break-even point is normally somewhere around £100k or lower. (It used to be £60k or so, but since then average fees have risen in line with the average mortgage size, in line with rising house prices).