Summary

Mortgage lenders use headline loan interest rates to attract borrowers. But behind the scenes they're introducing a whole raft of add on charges. This article explains.

Mortgages. Watch out for add-on charges.

Michael Challiner 14/03/06

Every year more and more homeowners are re-mortgaging their homes to benefit from mouth wateringly low interest rates. But beware, the lenders are hiking up their other add-on charges.

Behind those irresistible headline offers - for example, 4.3% for a two year fixed deal - some of the big mortgage lenders have been busy with the small print! Many have introduced a whole range of add-on charges and if you don't watch out, these can wipe out your savings.

The soaring charges are the lenders response to the borrowers increasing tendency to switch mortgages to take advantage of successive special offers. The industry are schizophrenic about switchers, on the one hand calling them “rate tarts” and then welcoming their business on the other! And re-mortgaging has certainly become big business. Last year, more than 1.1 million homeowners re-mortgaged for a total of £117 billion.

In fact, some lenders are now charging around £1,000 to switch to another mortgage product - even when it's supplied by themselves!

The sort of charges we're referring to are early redemption fees, valuation fees, exit fees, even telephone calls and photocopying! One well-known lender has even issued a list of 23 charges ranging from £35 for a telephone call to £26 for a letter and £20 for a replacement mortgage statement.

But the biggest concerns centre on exist fees. These are the fees which are charged when you decide to re-mortgage. Some lenders like the Royal Bank of Scotland and the National Westminster Bank, have increased them by 125% - from £100 to £225. Here are a few more examples:-

And how the lenders dress up the names for their various charges. For example, application fee, booking fee, arrangement fee, product fee and completion fee are all words for the same charge! Every one of these descriptions means the same thing! The multitude of words simply serves to confuse and make it difficult for people to make logical comparisons.

If this continues, people will become increasingly punch drunk and confused. It will become impossible for the average man or woman on the street to make sensible comparisons. And that will surely benefit the less scrupulous lenders. Maybe it's time for the Financial Services Authority to step in with their notoriously heavy boots!

A spokesman for the Nationwide Building Society which at £90 has one of the lowest exit fees, served to confirm our view saying, ”The mortgage loan market has become very fee orientated. Many larger banks are using fees to subsidise their lower rates. For example, many charge very high exit fees”. ( Life Assurance )

However, some mortgage lenders still defend their price rises. A spokesman from the Halifax said insisted recently that, “Our fees must be amended from time to time to reflect the rising processing costs”. This comment was made in defence of the 25% increase in it's arrangement fee over two years and the 75% jump in its exit fee.

Hands up who thinks cost inflation is running at 50% per year? Perhaps you should send an email to Gordon Brown copied of course, to the Halifax!

Kings College Brokers are a website that specialise in remortgages 

* Details sourced from the Daily Mail 03/06

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