Mortgage set up fee rip off

DarrenP_T

Why has no one picked up on the absolute rip off with respect to mortgage set up fees? With all the focus on rates, the lenders are all completely mugging us off with charges of £2000 to £6000 for arrangement fees. How on earth can they justify this, other than profiteering at our expense with these under the radar outlandish additional charges!!

CSI_Yorkshire

Can you please point us towards a lender that is charging a £6000 arrangement fee?

Most lenders that I've seen have a range from £0 to about £1500, which hasn't changed for many years.

kingstreet

They negotiate rate swaps with third parties and get lower rates with higher fees. The alternative is a product with a higher rate and low/no fees. If you are borrowing a lot, the lower rate makes a lot more sense. At a lower borrowing level, a higher rate no fee product usually suits better.

Exodi

kingstreet said:

They negotiate rate swaps with third parties and get lower rates with higher fees. The alternative is a product with a higher rate and low/no fees. If you are borrowing a lot, the lower rate makes a lot more sense. At a lower borrowing level, a higher rate no fee product usually suits better.

Completely agree with what you say.

That said, I am curious why lenders calculators don't help more with this.

E.g:

Why include the option to pay it upfront? It doesn't affect LTV, you're a broker, does anyone actually pay it up-front? Would be simpler to automatically add it to the loan and those few people who are desperate to pay it can just immediately overpay the mortgage.

Calculators require the user to input the loan amount, so it should be relatively straight forward to tell the user which of 'No Fee' and 'Product Fee' options make most financial sense. It's a simple equation, even a popup saying "Spending £999 to save £758 (for example) is counterproductive" - or go one further, don't include the option to pay a product fee on a low* mortgage amount at all (*this being the amount where the savings from the lower interest rate does not offset the product fee costs).

DarrenP_T said:

£6000 for arrangement fees

I'll bite, please provide a source for this.

ACG

The fees allow you to buy a cheaper rate. 
Nobody is forcing you to take out the products with the higher fees.

The £6k fees are usually on BTLs rather than residential mortgages (although there are a few exceptions). The lower rate/higher fee model helps with the rental calculations and affordability checks. But they come with the inflated fees. 

This is why I always say dont get caught up by the rates, the fees play an important part in the cost. A £100k mortgage is going to feel a £6k fee far more than a £1m mortgage will. 

dunstonh

Why has no one picked up on the absolute rip off with respect to mortgage set up fees?

Because there is no rip off.

 With all the focus on rates, the lenders are all completely mugging us off with charges of £2000 to £6000 for arrangement fees. How on earth can they justify this, other than profiteering at our expense with these under the radar outlandish additional charges!!

Easy for lenders to justify.  Those particular mortgages are priced to remove the margin from the rate and place it into the fee.    They are typically aimed at larger borrowers.

For some people, the fee method is the best option. For others no/low fee is the best option.  Isn't it good that we have choice?      

As usual with MSE and first time posters calling rip off, there isn't one.

JMA74

Exodi said:

kingstreet said:

They negotiate rate swaps with third parties and get lower rates with higher fees. The alternative is a product with a higher rate and low/no fees. If you are borrowing a lot, the lower rate makes a lot more sense. At a lower borrowing level, a higher rate no fee product usually suits better.

Completely agree with what you say.

That said, I am curious why lenders calculators don't help more with this.

E.g:

Why include the option to pay it upfront? It doesn't affect LTV, you're a broker, does anyone actually pay it up-front? Would be simpler to automatically add it to the loan and those few people who are desperate to pay it can just immediately overpay the mortgage.

Calculators require the user to input the loan amount, so it should be relatively straight forward to tell the user which of 'No Fee' and 'Product Fee' options make most financial sense. It's a simple equation, even a popup saying "Spending £999 to save £758 (for example) is counterproductive" - or go one further, don't include the option to pay a product fee on a low* mortgage amount at all (*this being the amount where the savings from the lower interest rate does not offset the product fee costs).

DarrenP_T said:

£6000 for arrangement fees

I'll bite, please provide a source for this.

With some lenders, adding the fee to the loan takes you in to the next ltv bracket and you lose the rate, and with other lenders they allow you to add the fee and keep the rate

Some lenders lend less at different ltv bands. And if they add the fee, taking you in to the next band then it may reduce the amount you can borrow in total making the original amount unaffordable 

With some lenders, adding the fee to the loan is counted as borrowing on the affordability calculator, and with some lenders it's not

Re the calculators,  I think some of the price comparison sites do this. Lenders don't really have any desire to change the current model of having more people come to them for advice. It's expensive from a staffing and a liability point of view to give advice on what deal is most suitable.  They are happy to let people make their own decisions and do it online, or to have a broker do it.

And finally, the arrangement fees.   Plenty Btl lenders have been forced in to this recently as otherwise the stress testing doesn't work. Just the nature of the high rates and property prices being where they are. 
Also, did a deal this week with a £10240 arrangement fee that worked out cheaper over 5 years than the deal with £999 arrangement fee.  Sometimes the numbers just fall this way