OMG! £2600 arrangement fee!!!!!

EdInvestor

Investing in bank shares is quite a good way of getting some of it back

Mr_helpful

The hidden effect of fees using current figures from a KFI
1 mortgage interest only 200K using Northern rocks current deals for 2 yr fix
1st scenario 3.5% fee £7000 rate 3.99% £688.59 per month for 2 yrs
2nd scenario 2.0% fee £4000 rate 4.79% 814.68% per month for 2 yrs
So which is best both show APR of 7.3% so no hint there
24 X 688.59 = 16526.16 + 7000 = 23526.16
24 X 814.68 = 19552.32 + 4000 = 23552.32 The first deal being better off over the 2 yrs by just £26.16 not much really is it until you look at the effect of the fees on overall payment. Taken fro a KFI the total cost over 25 yrs would be for the 1st scenario 565316.54 and only 560259.87
The effect of those fees in the first scenario is over 5000 extra to pay back on a deal that looked slightly cheaper.

jamesd

Your calculation shows that the fees have been more than recovered - 26.16 more - over two years, so what is making the lower interest rate more expensive over 25 years? Adding fees to the loan but not taking that extra borrowing into account over the two years, only over 25?

Mr_helpful

Er yes thats because the fee isnt gone over the two years its there as added borrowing for the full length of the mortgage. Those figures were not made up by me They were taken from 2 KFI's One for each rate as would have been given to the customer had they had that mortgage. If you think they are wrong or misleading complain to the FSA because they determine how a KFI is made up. You could say I didnt account for a remortgage at the end of two years but that actually makes the figures far worse if we did the same exercise 2 yrs on.
Your answer demonstrates exactly why this "choice" of fees is confusing to the public who after all only buy a few mortgages in a lifetime.
It is totally beyond me that on a site where everyone is jumping on the bandwagon complaining about mis sold this and that and non transparency of things that so few people realise that they are being shafted by the lenders on this one. Also so few brokers seem to be on the side of their customers, instead opting to support the lenders that pay them.

EdInvestor

Mr_helpful wrote:

Also so few brokers seem to be on the side of their customers, instead opting to support the lenders that pay them.

"Brokers" and "advisors" act primarily as a distribution system for the providers' products. So this is entirely to be expected.

In all but a very few cases it's a fiction that they are working for the client, because although the client is ultimately charged fees to cover the salesmen's wages, this occurs over the lifetime of the product, which is often very long.

It is the provider that pays out the money upfront to the distributor.

He who pays the piper calls the tune.

jamesd

Mr_helpful wrote:

Your answer demonstrates exactly why this "choice" of fees is confusing to the public who after all only buy a few mortgages in a lifetime.

Now tell us what the monthly payment amounts from the KFIs that gave the 565316.54 and 560259.87 25 year numbers were.

Mr_helpful

1st scheme with 3.5% fee 23 payments of 688.59 followed by 59 payments at svr 7.34% of £1266.73 followed by 218 payments at variable rate currently 7.09% of £1223.59 (reason for this discount is NR give a loyalty discount)

2nd Scheme with 2% fee 23 payments of £814.68 followed by 59 payments at svr 7.34% of £1248.38 followed by 218 payments at variable rate currently 7.09% of£1205.86
The reason the 2nd scheme is cheaper is because it is incorrect to only calculate the fee over the fixed period. Now you can play with these figures until the cows come home but it doesnt get away from the fact from it is confusing to the public and a blatant rip off

Mr_helpful

EdInvestor wrote:

In all but a very few cases it's a fiction that they are working for the client, because although the client is ultimately charged fees to cover the salesmen's wages, this occurs over the lifetime of the product, which is often very long.
.

So the advisers fee (which I dont charge) is wrong because it has an effect over the lifetime of the mortgage is wrong but an arrangemet fee which is higher and does the same is ok is it?
I dont know what sort of person you think, I am A mortgage adviser who works on behalf of this clients. Will charge either a fee or accept a procuration fee or both. I offer a pure fee (any proc fee returned in full to the client) but find it cheaper just to accept the proc fee but my files which are inspected from time to time show that I have put business with a good spread of lenders who dont necesarily pay the best proc fee si I disagree with the charge that the lender call the shots with the brokers.

EdInvestor

The question is, who is paying the fee? Who puts the money into the broker's hot little hand? It's not hard to see the connection, is it?

I am not suggesting that all brokers and advisors shamelessly rip off clients by flogging them unsuitable products which offer the highest commission.There is a significant group in the industry who are as critical of the structure as I am (including, lately, the boss of the FSA!)

But there's no doubt that brokers and advisors are incentivised to steer close to the dividing line daily, is there?The mere fact that there has to be such a massive amount of regulation to at least try to deter them, is an indicator in itself.

I'm afraid there's something fundamentally wrong with the system.

Mr_helpful

I agree with you that there are problems with the system which to be honest have been made worse by the regulation from the FSA. There are several areas which are confusing to the public. One of the worst is the difference between whole of market and Independent. Then is independent really as independent as people think?
A broker though is just like a supermarket that sells different products The supermarket makes differing levels of profit on different lines but everyone accepts that..
To me the FSA should have an involvement in the product and not just the sale but they dont like that idea as responsibility might lie with them when things go wrong.