TSLE: Brokers warned to watch out for ‘stealth fees’ as lender margins tighten

Speaking at The Specialist Lending Event at the National Conference Centre in Birmingham yesterday, Ian Harrison (pictured), operations director at Affirmative Finance, said he was starting to see “stealth fees” appear with competitors.

He said one such cost that had increased was site fees, with competitors charging between £800 to £1,200 for a site visit whereas they did it free of charge. Other fees could be commissions on valuations.

“There are little tweaks and what I call stealth fees appearing. What I would say to brokers is make sure you read your offers. The offers may not detail every fee that’s there.”

Harrison said “stealth fees” had become more “prevalent” due to the “race to the bottom”, where interest rates cuts caused a squeezed profit margin.

He said Affirmative Finance was owned by two lawyers who acted as an in-house legal team, so every time an offer was issued the legals showed the fees with VAT.

However, with other lender offers he had seen the legal fees often had ‘TBC’ next to them.

“I think that [fee costs] is something that needs to be built into regulation. There has got to be a true cost for each transaction.”

Harrison continued that other developments he had seen in sector was the word “from” next to rates.

He said: “The biggest thing I have seen is the word ‘from’… I have seen the word ‘from’ appear through many of our competitors. The lower rates, whilst they were advertised, didn’t exist.”

He added that many of the lender’s competitors got their funding from investors, and with shortage of funds with competitors cases coming to end of term they were “coming down heavier on them to make sure the money is coming back in”.

Funding across the board is more challenging

Richard Saunders, head of sales at Market Harborough Building Society (MHBS) said as the mutual was funded through savings, this presented challenges in the rising rate environment.

He said as savings rates increased, the lender had to keep pace to attract the level of deposits to fund lending, but the cost of living crisis meant people had less money to put aside.

“It’s harder to attract savings because people have less savings to attract. Therefore, we’ve probably had to pay a premium for our savings, but we need to keep lending rates… competitive, and so in reality this means our margins have been squeezed.”

Saunders said this was happening “across the market” and there was a bit of a “disconnect” between savings rates and mortgage lending rates.

“I think savers expect savings rates to keep up with the Bank of England largely. Mortgage lending rates are, by and large, disconnected from the Bank of England these days and they tend to lag behind what the cost of funding is across the market.

“There is a bit of a disconnect, as far as the cost of funding is concerned.”

Saunders said the shift from a “flat interest rate environment” had impacted the appetite of pension funds and investment funds to back warehouse facilities, who had shifted to more “traditional investments”.

“Some of those funds have recently switched off but I’ve spoken to a few non-bank lenders in the past few weeks, and they’ve had to diversify their source of funding. Some have gone from having one or two streams of funds to having 16 to 18 in some instances, and each of those will cater for a specific type of lending.”

He said that as a result “good smart non-bank lenders” would be “well-protected” due to this diversification, adding were in a better position than they were two or three years ago.

Saunders noted that securitisation had “dried up for a period of time and it was less and less available”.

He noted that lenders securitising their books may not necessarily have the same freedom as a balance sheet lender as it is another institution’s money. For instance, they may not be able to offer further advances or product switches.

“I think that’s easing a bit, I think lenders that have those restrictions are overcoming those. But it is an issue and especially with Consumer Duty coming in being able to offer further advances and product switches is part of that fair value piece that will affect the market.

“I think lenders need to take into account that they really need to be able to offer those facilities and offer a lifetime of an end-to-end service to their customers.”

The Specialist Lending Event continues next week with events in Wetherby and Bolton. If you are interested in attending follow this link. 

The views of the panel members do not necessarily reflect the views of the individual’s company.