Application Arrangement Fees - Mortgages!

snax0

I'm sorry - it's my calculator - I should have spotted all the banks on the high street going bust because of all the money they are losing every day!

dwsjarcmcd

snax0 wrote: »

I'm sorry - it's my calculator - I should have spotted all the banks on the high street going bust because of all the money they are losing every day!

Like Northern Rock perhaps!!

dunstonh

snax0 wrote: »

I'm sorry - it's my calculator - I should have spotted all the banks on the high street going bust because of all the money they are losing every day!

You can use Northern Rock as a very good example of this. Heavy UK focus. Heavy mortgage focus and large fixed rate count. Money lent to customers largely came from outside investors. The outside investors get the benefit of the interest rate leaving Northern Rock the benefit of the arrangement fees and cross sale opportunities. Credit crunch comes, no-one wants to lend money to the banks and Northern Rock fails.

If you chose to take an interest in the subject you would find that most of the banks profits comes from overseas and not the UK. Indeed, it is very hard for the UK only banks to make a decent profit and they wont be round in the long term.

Kaz64_2

Kaz64 wrote: »

So my broker is telling me Porkies then? Hmmm. So my best bet is, on completion, to pay those fees up front? Would that automatically be taken off my loan, or do I have to change some paperwork?

Um... any advice on my last post please?

MarkyMarkD

And if you want to focus specifically on the UK mortgage market, obviously lenders do make money. But they don't make it from the interest margin on products within their concession period. They make it from two things:

- fees; and
- interest margin on mortgages after their concession period, typically whilst borrowers are paying SVR or similar rates.

I never said UK mortgage lending wasn't profitable. My point was that it isn't profitable to lend at the sort of rates people will take out new mortgages at, without charging fees.

MarkyMarkD

Kaz64 wrote: »

Have read this thread with interest.... I am just about to take out a fixed rate mortgage that has a £1500 arrangement fee, and the interest is 5.85%...... so now I understand why there are bigger fees on some mortgages. The only thing I am a little concerned about is having it thrown in with the loan... but apparently it's safer to do it that way in case it all goes pear-shaped on the house sale. If I paid up front, I would lose that £1500.

Some lenders always charge product (arrangement) fees up front by adding them to the loan. Others allow you (or require you) to pay them up front, and then don't necessarily refund them if your application falls through.

If you have the choice of paying on completion, then it's always better to do so - so your broker's advice makes sense.

There is a lot of misguided waffle about how bad it is to add fees on to your mortgage. If you have the money to pay the fees up front, you may wish to do so. If you don't, then adding them to the mortgage is likely to be the cheapest way for you to borrow the money.

If you are buying a mortgage with a percentage fee, it is positively ridiculous to pay the fees up front. It is cheaper to have the fees added to the loan, but to borrow less in the first place.

E.g. Mortgage value £200,000 with a 3% up front fee = £6,000 fee.

If you have £6,000 to pay the fee, you could simply borrow £194,000 instead, so the 3% fee is only £5,820. And then let the lender add it to the account, leaving you with a mortgage balance of only £199,820 instead of £200,000.

For product with fixed fees, it makes no difference either way.

aah

If there were less heavy sarcasm and smart alec language on this thread then one may be able to understand a little more what is going on with mortgage fees and interest rates.
I suspect it to be a bit blokey.
I get it at work. Prof so-and-so can use bigger words and more of them than Prof x-and-y who agrees but in different and distant language, but never quietly. Meanwhile poor little Dr picking-up-all-the-work can't get words in edgeways for all the puffed up testosterone clouds.

Just do the sums and make your own choice; there doesn't seem to be much advice on here, unfortunately

UK007BullDog

Kaz64 wrote: »

Um... any advice on my last post please?

Marky_Mark did explain it very well a few posts up.

I am a bank mortgage adviser. I get very few people to pay the fees upfront because they have the savings to do so. Having said that "our" fees are around £0 to £1600 max.

I prefer to add the fee to the loan because:

1. Declined mortgage, fees will get recharged from us anyway.
2. House purchase falls through:
A. Prepaid fee - you loose the fee
B. Added to loan - you are scottfree and have not lost anything
3. Once the mortgage has completed I advise my customers to make a couple of lump payments on top of their regular monthly mortgage payments which will pay off any added fees and save interest on those fees in the long run.
4. I always advise my customers to take advantage of the overpaying facility to reduce the mortgage amount more quickly.

If you check out the high street there are some very good deals available right now especially for those remortgaging, some have no fees at all and the rates are not bad either.

A warning for those thinking of SVR trackers: On the last Bank of England rate reduction only 27% (or thereabouts) passed the reduction on to their customers and about 2/3rd of them did not even pass on the whole reduction. So do not bank (sorry for the pun) on getting a reduction just because the BoE reduced rates. Because the overall problem is still there: Not enough money in the system for the banks to give away to borrowers.
Which has been explained very well by brokers on this thread.

UK007BullDog

The other thing I would like to point out are the comments on renumeration as there are still myths about. I used to be a broker so know what i am talking about.

Brokers:
a. They can charge a fee and get commission from the lender
b. They just get a commission from the lender
1. High street lenders do not pay as much commission as the specialised lenders or the sub prime lenders.
2. It is up to you if you want to pay a fee or not (so find a broker which suits your own personal belief)
3. If you pay a fee there is no guarantee you will get the best advice, or any advice, nor the best deal (I see it all the time when people come and see me in a bank reading their offer letters)
4. There are ethical brokers out there, one just has to look and ask questions, maybe get 3 quotes to compare. Do a bit of legwork and take responsibility yourself as it is your largest loan you will ever take out.

Bank & Building Society Mortgage Advisers:
They are targeted to sell a certain amount of mortgages per week/month. If they meet their targets (sales and completions) they will get a bonus on top of their salaries.
There are very few advisers that consistently hit targets, hence the churn of advisers.
All positions in the customer facing parts of the Financial Institutions are targeted.

People working in other sales arenas are targeted too. Clothes, Shoes, Hospitals, Schools, Councils, Mobile Phones, Furniture, Car Sales, Rentals, Bookshops etc. Any sales or service oriented arena has targets. I do not agree with it as it makes things worse as people hunt for the next credit or point instead of making the customer happy. You hit targets you get rewards, you do not and its just your salary or the dismissal.

Then there is the claw back: if customers change their mind and cancel a contract then the earned commission or points are taken away. Giving a negative start to the week. Putting on more pressure.

Hence I make sure my customers are 100% committed.

People say do not work in such an environment, but one has to work somewhere.

Salaries:
1. Brokers
A lot of brokers work self employed. Hence some have quite an overhang to pay out of their own pockets. They have long working hours and work late at night and on weekends as well. Some who are long established and have a solid client base can earn a good amount of money. But most do not earn much more to those employed in a Bank for instance.
Employed brokers get a basic salary and then get a bonus depending on how many sales they made with the employer taking a big cut of up to 90%.
Then there are those brokers who are self employed but work for a brokerage. They can also earn well but still have to give up a percentage of their earnings/commissions to the brokerage usually it can be up to 80%.

Building Societies and Banks:
Salaries start at around £18,000 up to £35,000 for the top performers. Average is around £22,000 to £25,000. Bonuses start at £0 and I have heard of as much as £10,000 in a year. Average is around £4,000 to £5,000 per year. One also has some benefits (pension, health, life cover) and if sick gets paid unlike the self employed brokers. So we are not Fat cats.

Personally the only ones who get rich in the mortgage business are the top honchos working for the lenders or those brokers who have lots of self employed advisers working for them.

Looking at the job sites there are many advisers (mortgage and Financial)sought after but many are leaving the profession due to stress and pressures. Even I have been thinking about it. The constant ongoing training and certification requirements which are very costly and have just increased again in the 1.1. are also a consideration as these costs most have to fund themselves if they want to move forward and are also a requirement by the FSA. One does not see Solicitors or Doctors getting retested every month or quarter to stay authorised in their jobs, but we have to do this.

What do I see for the future?
1. Very specialised one man bands who charge fees for their knowledge and access to their markets.
2. Super brokerages that offer every service under the sun (free or at a price, fees)
3. High street Banks and Building Societies for the masses who cannot pay the fees or do not want to pay the fees.

My Wish (may be utopia now, but may just come true in the future:

Only Brokerages can sell mortgages or any protection or any financial products. They must be completely whole of market to give customers access to it. Payment: either all lenders and insurers pay the same commission (price fix so no choosing one over the other due to higher commissions) or the customer pays a fee for the service. Building societies and banks cannot sell their own Mortgages, Loans, Investment and Protection packages. They are only allowed to do bank accounts credit cards, loans, savings and give customers a decent service.
Yeah i know, total utopia.

dwsjarcmcd

UK007BullDog wrote: »

A warning for those thinking of trackers: On the last Bank of England rate reduction only 27% (or thereabouts) passed the reduction on to their customers and about 2/3rd of them did not even pass on the whole reduction. So do not bank (sorry for the pun) on getting a reduction just because the BoE reduced rates. Because the overall problem is still there: Not enough money in the system for the banks to give away to borrowers.
Which has been explained very well by brokers on this thread.

This is not the case. With a tracker the lender is contractually obliged to pass on any increase or decrease. I think that you are getting confused with the lender's SVR, which as a 'managed' rate, they are not obliged to amend following base rate changes.

David