excessive arrangement fees

Mr_helpful

A little while ago there were threads on these fees. I seened to be out of tune with most of the other brokers who didnt share my view that it was unethical and nearly impossible to compare mortgages for the client with these fees.
This has appeared in the authoritive mortgage strategy magazine. I wonder how long before they get regulated now that people higher up in the industry are noticing what is wrong with these fees

"Lender fees complicate brokers' jobs
- 02-Apr-2007
Kevin Paterson is national sales director at Park Row Associates
Kevin Paterson takes a weekly look at the latest developments in the market and brings you what's hot and what's not in the world of mortgages


There has been a recent and disturbing trend among lenders to hike the upfront fees they charge on certain deals and this is distorting the market and making intermediaries' jobs harder.
For a seriously competitive rate, a fee of £499 is about as much as many of us could accept but these fees have been creeping up recently to the point at which fees of £999 or even £1,499 are not unusual. But what recently threw a grenade at this dubious practice for me was a deal I came across with Northern Rock whereby it was charging an eye-watering 3.5% fee on the back of a 3.99% two-year fixed rate deal.
The headline rate gets it to the top of the best buy tables but when you wade through all the details and double check the Northern Rock website it becomes clear that the rate on offer is not the rate the client is going to get - a 3.5% fee essentially adds 1.75% to the annual interest rate, making the true fixed rate an uncompetitive 5.74%. And if it's a repayment mortgage, this rate is probably higher or worse still if the fee is added to the loan. The mind boggles.
This is a cynical manipulation of the system and creates additional work for brokers in an already fiercely competitive marketplace, with thousands of products vying for our attention. Also, these deals are not in line with the Financial Services Authority's Treating Customers Fairly initiative because misleading clients into thinking they are getting a seriously competitive rate and then hitting them with a large upfront fee is hardly fair."

dwight-van-man

Its niave of Kevin Patterson to beleive that any lender would be prepared to offer a seriously competitive rate for a £499 fee - four years ago maybe but regulation itself has driven the cost of lending up. As previous columns he's written have discussed the extra costs of regulation to brokers, he should be well aware of this. The trouble is that consumers, brokers and lenders have been so used to a market driven by cheap 2 year fixed rates in recent years that when the actual cost of borrowing rises, no lender will stick their head above the parapet and offer a range of deals where the rate reflects the cost of lending. They just wouldn't get any business. At the opposit end of the spectrum, look what happens when a lender offers a 'seriously good rate' with a low fee. Lloyds TSB/C&G anyone?

Collums like this are misleading because they imply that everyone must pay a percentage arrangement fee to get a mortgage, when the lenders that are going down this route are starting to offer tiered fee/rate combinations which are better for clients in general as they improve the choice available, with the minority of clients who choose to take a percentage fee deal cross-subsidising rates for those that choose not too, thus keeping down the tru cost of borrowing. If Kevin Patterson actually sold mortgages, he would be aware of this and perhaps would not have come up with the utterly ridiculous claim that percentage fee deals don't comply with TCF.

KTF

How hard can it be to take the fees into consideration as well when presenting the overall cost to someone? I made a spreadsheet that could do it so I imagine an adviser has similar (and probably better) tools at their disposal?

toonfish

KTF wrote: »

How hard can it be to take the fees into consideration as well when presenting the overall cost to someone? I made a spreadsheet that could do it so I imagine an adviser has similar (and probably petter) tools at their disposal?

it is not difficult - but leads to misunderstandings as people fall for the headline rate.

Conrad

On every case I simply factor - in the fees. Its quite obvious that the higher the fee the lower the rate. Any rate that seems to good, is.

Anyone recommending 2 year deals may not be treating customers fairly. I tend to stick with 5 year fix's. If you factor - in the cost of remortgaging in 2 years, the case to avoid 2 year deals is made (unless client plans to move home in 2 years).

As for lenders charging high fee's - its just a feature of a diverse marketplace. Im amazed some brokers have only just noticed this trend, its been going on for a while now. Lenders such as A & L can charge even more than N Rock.

absolutebounder

is 5 yrs too long for many people who might want to change things or move house

AndrewSmith

I have to agree with Conrad in as much as 2 year fixed rates are not usually the most cost effective recomendation based on a true cost comparison against a longer term fixed rate due to the cost of re-mortgage/product switch after such a short time.

I am finding that 3-5 year fixed rates are the most popular, more people edging toward the 5 year rates, partly because of the need for longer term budgeting security and partly because of very clever pricing of these products by the lenders.

5 years is not too long for most people as the vast majority of mortgage products these days offer a portability option should they wish to move house within the incentive period.