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Mortgage fees: How high is too high?

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  • 06/02/2012
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Mortgage fees: How high is too high?
Last week, financial information firm Moneyfacts revealed the average arrangement fee on a residential deal soared from £889 in 2010 to around £1,500 in 2011, up almost 70%.

Its research, which put direct-only and intermediary business together, found that the average fee for a 60% LTV mortgage has risen by 42%, whilst fees on 90% and 95% loans rose by 11%.

Jonathan Clark, mortgage partner at Chadney Bulgin said: “Our advice to clients in all circumstances is to encourage them to add the fee to the mortgage. My clients don’t seem to have a problem with that. When we talk about the £200 fee we charge, they whinge more about that.”

Clark added that mortgage fees are accepted by consumers until they reach the psychological £1,000 mark.

“This is why we see so many lenders charging fees at £995 and £999,” he said.

Ian Gray, mortgage manager at Largemortgageloans.com added that consumers “don’t have an aversion to paying flat fees,” only percentage fees, which he suspects is what pushed the average figure up 70%.

Moneyfacts statistics show the highest charging lenders in the market include Accord Mortgages, GE Money and Precise Mortgages, with fees of £1,500 to £3,800.

All the lenders charging fees of over £2,500 are distributed by three different mortgage clubs including Legal & General, Pink Home Loans and PMS.

TrigoldCrystal’s research has shown that the average arrangement fee for intermediary business deals last year was around £1,300, while the average for direct-only deals was around £820.

Ben Thompson, managing director of Legal & General Mortgage Club said lenders vary their product pricing according to distribution strategy.

“Sometimes direct channels look more attractive, more often than not intermediaries will have the better products however over the course of a full year all products and pricing across all distribution channels broadly evens out,” he said.

“In terms of pricing, lender fees can be higher to drive a lower pay rate and vice versa. If analysis shows that direct lender fees over a year are lower than say through Mortgage Clubs or other intermediary channels, it probably means that headline pay rates through Mortgage Clubs or other intermediary channels are lower.

“It all comes down to product design and choice – some customers want low fees, some want low rates and it is not possible to get the best of both worlds.”

LargeMortgageLoans’s Gray suggested the average fee on intermediary deals could push through the £2,000 barrier by 2017.

“Ten years ago, the average fee banks charged was £200. If fees on intermediary deals are currently averaging around £1,300 as TrigoldCrystal suggests, then they’re currently going up by 8% per year. If we apply the same average rate of increase over the next five years, than fees will be around £2,000 by 2017.”

Brokers have suggested that the latest Mortgage Market Review shouldn’t impact mortgage fees.

David Sheppard, managing director of Perception Finance said: “I don’t think the regulator thinks banks are treating customers unfairly. While every now and again there are noises about mortgage fees, it’s not a hot topic for the FSA.”

Gray insists that fees will only stop rising when customers begin to feel they are being treated unfairly.

“If something is very unfair, consumers will act with their feet and won’t take the deal. Similarly, if the regulator decides that mortgage fees are too high for consumers than that will ultimately stop fees from rising any further in the future.”

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