I can only get a product with a fee

Newbie_John

You can pay off this £1500 fee as overpayment at anytime - so you don't have to pay interests on it for the entire length of the mortgage.

Not sure how big is your mortgage but for many mortgages it is cheaper to go with a fee (you get better interest rate %), use the mortgage calculators and check yourself.

Also, if you're taking 20 years mortgage fixed for 5 years, you'll face the same dilemma every time you renew - fee or no fee. I paid £999 fee first time with my 5 year fixed, few months ago decided to renew for 2 years and the offer with a fee was still cheaper during the course of 2 years then without fee.

ACG

The £1500 isnt an add on... They are not selling you anything for that £1500, it is just part of the cost of the mortgage. 

It is all to do with how the product has been designed, by charging a £1,500 fee the interest rate is lower. A lot of people get turned off by higher interest rates, so a rate with a fee can be a way of overcoming that mental barrier. But in addition to that, if the product is a 5 year fixed rate the lender has the option of basing affordability on the rate payable rather than their stress testing rate. 

A lower rate with a fee can also help to overcome affordability issues. Which in your case appears to be an issue. 

Dannydee333

Emmia said:

Have you tried going direct to the bank i.e. the one your salary goes to, and not using a broker at all? 

If your files are in order, with no marks (presumably you've checked all the different credit reference agencies, not just one of them) and the multiplier is reasonable on your salary (i.e. not 5x), no big payments going out, on cars, bitcoin, gambling, payday loans... and you have a good deposit level then that's where I'd be looking...

I really struggle to know why if people are in a good position to buy, that they'd use a broker, it just seems to be adding another layer to the whole process.

My main bank declined me too. Which, yes, makes me sound unreliable, but I can't understand why. I have an above-average salary, never missed a DD payment in my life, don't have any cars or loans, and I don't even have car insurance to pay because I like to pay things like that upfront to get it out of the way. Even after all my monthly outgoings, I still have at LEAST 500 of spare money left over. That's why it's weird. If they want to refuse custom and the opportunity to take in more money than they gave out, well it's their loss I suppose.

As for the broker thing, perhaps you've done this before and that's why it's a struggle to understand but from a first-time buyer perspective, it's useful to have someone do all the !!!!!! for you, for free. I have a case manager (also free) who is going to be chasing things up afterwards and dealing with solicitors, etc.

Maybe next time I do this I'll be more comfortable doing it all myself.

Dannydee333

DullGreyGuy said:

But you can still buy the sofa as the £1.5k becomes part of the loan and just increases your repayments marginally. 

It does sound that money is tight with this purchase which is probably wants pushing you to this product. If monies improve later you can then over pay the mortgage and so reduce it quicker and save overall on the interest being paid. 

Have you considered a longer term than 20 years to reduce the repayments and potentially make it more affordable?

I don't think it is tight or that it should be seen as tight. I'm in a much better financial position than I'm being given acknowledgement for. I can overpay mortgage payments from the beginning if I want.

The 20 years was theoretical for the Q. I'm actually doing it over 30 for now, but I don't think it matters long-term because I'll be moving again in about 5 years and I will also be getting promoted in that time. So, I'll end up reducing the term in the future anyway when I have more money to play with.

Dannydee333

Newbie_John said:

You can pay off this £1500 fee as overpayment at anytime - so you don't have to pay interests on it for the entire length of the mortgage.

Not sure how big is your mortgage but for many mortgages it is cheaper to go with a fee (you get better interest rate %), use the mortgage calculators and check yourself.

Also, if you're taking 20 years mortgage fixed for 5 years, you'll face the same dilemma every time you renew - fee or no fee. I paid £999 fee first time with my 5 year fixed, few months ago decided to renew for 2 years and the offer with a fee was still cheaper during the course of 2 years then without fee.

The rate is very marginally less but I will be moving again in about 5 years so I still would have preferred a fee-free product and since this is apparently the best on offer given my circumstances, I don't feel like I have much choice. Which adds to my displeasure, of course.

Dannydee333

ACG said:

The £1500 isnt an add on... They are not selling you anything for that £1500, it is just part of the cost of the mortgage. 

It is all to do with how the product has been designed, by charging a £1,500 fee the interest rate is lower. A lot of people get turned off by higher interest rates, so a rate with a fee can be a way of overcoming that mental barrier. But in addition to that, if the product is a 5 year fixed rate the lender has the option of basing affordability on the rate payable rather than their stress testing rate. 

A lower rate with a fee can also help to overcome affordability issues. Which in your case appears to be an issue. 

Why can a large proportion of products be offered without a fee? Who pays for that "cost of the mortgage"? The rate difference is nothing to get excited over but it doesn't matter to me because I don't want a fee product.

A lower rate with a fee can also help to overcome affordability issues.

If they have concerns about someone's 'affordability' then in what world does it make sense to expect them to be able to 'afford' a significant additional fee upfront?

I genuinely think mortgage products are too complex and could do with some cleaning up and simplifying.

I personally don't have any affordability issues. I have at least a spare 500 quid a month after everything else is paid. So it seems a lot of lenders' criteria are a little too tight.

DullGreyGuy

Dannydee333 said:

Emmia said:

Have you tried going direct to the bank i.e. the one your salary goes to, and not using a broker at all? 

If your files are in order, with no marks (presumably you've checked all the different credit reference agencies, not just one of them) and the multiplier is reasonable on your salary (i.e. not 5x), no big payments going out, on cars, bitcoin, gambling, payday loans... and you have a good deposit level then that's where I'd be looking...

I really struggle to know why if people are in a good position to buy, that they'd use a broker, it just seems to be adding another layer to the whole process.

My main bank declined me too. Which, yes, makes me sound unreliable, but I can't understand why. I have an above-average salary, never missed a DD payment in my life, don't have any cars or loans, and I don't even have car insurance to pay because I like to pay things like that upfront to get it out of the way. Even after all my monthly outgoings, I still have at LEAST 500 of spare money left over. That's why it's weird. If they want to refuse custom and the opportunity to take in more money than they gave out, well it's their loss I suppose.

As for the broker thing, perhaps you've done this before and that's why it's a struggle to understand but from a first-time buyer perspective, it's useful to have someone do all the !!!!!! for you, for free. I have a case manager (also free) who is going to be chasing things up afterwards and dealing with solicitors, etc.

Maybe next time I do this I'll be more comfortable doing it all myself.

Above average salary means nothing if you are trying to get a 95% mortgage on a £1m property. You need to look at things in the round and single data points without the remainder aren't helpful.

You say you currently have £500+ left over each month but don't say if you're currently renting or living rent free, assuming renting you don't say how your mortgage compares to the rent. You don't say if the new place has any service charges which will be factored in.

Banks tend to use set assumptions on how much people spend on certain things so you could be having £500 a month left over because you've not put the heating on for 15 years and survive on cold tins of Tesco Value Beans. The banks assumptions wouldn't be that and would use a more average energy consumption figure for the size of property you're buying etc. 

MattMattMattUK

Dannydee333 said:

I don't think it is tight or that it should be seen as tight. I'm in a much better financial position than I'm being given acknowledgement for. I can overpay mortgage payments from the beginning if I want.

It does not really matter what you think, there are strict affordability criteria and the banks have to have them approved by the regulator, they cannot lend more just because someone says that they can afford it, or even evidences that they can, it is based on income, actual and then also average expenditure costs. Banks are also somewhat nervous in the current climate and are looking to minimise any potential losses.

When I took out my current mortgage I could afford to pay three times the monthly payments, but they would not lend me more than that because of the way affordability is calculated, as it was I overpaid then reduced overpayments when Covid hammered my income, before increasing again recently. 

Dannydee333 said:

I personally don't have any affordability issues. I have at least a spare 500 quid a month after everything else is paid. So it seems a lot of lenders' criteria are a little too tight.

It is not about being too tight, it is about a safety margin. As others have said to an extent affordability can be played around with by extending the term, but in reality, especially with current interest rates, you would be better taking the smaller mortgage, overpaying significantly for the next few years and then when you have more equity and the mortgage market has improved (and house prices dropped by the estimated 6-10%, buying a larger property, if that is what you still want. 

Neilos9

Your own bank declined you - which suggests its a YOU problem.

Emmia

Dannydee333 said:

Emmia said:

Have you tried going direct to the bank i.e. the one your salary goes to, and not using a broker at all? 

If your files are in order, with no marks (presumably you've checked all the different credit reference agencies, not just one of them) and the multiplier is reasonable on your salary (i.e. not 5x), no big payments going out, on cars, bitcoin, gambling, payday loans... and you have a good deposit level then that's where I'd be looking...

I really struggle to know why if people are in a good position to buy, that they'd use a broker, it just seems to be adding another layer to the whole process.

My main bank declined me too. Which, yes, makes me sound unreliable, but I can't understand why. I have an above-average salary, never missed a DD payment in my life, don't have any cars or loans, and I don't even have car insurance to pay because I like to pay things like that upfront to get it out of the way. Even after all my monthly outgoings, I still have at LEAST 500 of spare money left over. That's why it's weird. If they want to refuse custom and the opportunity to take in more money than they gave out, well it's their loss I suppose.

As for the broker thing, perhaps you've done this before and that's why it's a struggle to understand but from a first-time buyer perspective, it's useful to have someone do all the !!!!!! for you, for free. I have a case manager (also free) who is going to be chasing things up afterwards and dealing with solicitors, etc.

Maybe next time I do this I'll be more comfortable doing it all myself.

We didn't use a broker as first time buyers, I did a rough affordability calculation based on our deposit + income using one of the comparison sites, and then worked out what type of property / location that would buy by browsing rightmove... I also worked out what the repayments would be monthly over various term lengths.

We then went to the bank we both have our main accounts with, and applied for the mortgage, frankly it never occurred to me to even consider a broker, I prefer to do this stuff myself - you need to provide all the information the broker needs, so why not just provide it directly to the bank?

Since then we've just gone for new fixes done online with the same lender - but I do have a look on comparison sites then to see if the rate being offered is competitive. 

But, if your bank isn't offering there is a problem and you need to work out what that might be.