Mortgage lenders capitalise on fees

Finance experts are warning homebuyers to check that what appears to be a good value mortgage does not entail unreasonable fees.

There have been reports of some leading lenders increasing their arrangement fees by more than 600% over the last two years.

In some cases, banks and building societies are manipulating data so that they appear in best-buy mortgage tables but low interest rates are being offset by an arrangement fee.

Intelligent Finance, which is a subsidiary of Halifax, the UK’s largest mortgage lender, is reported to be charging up to £2,999 as an arrangement fee, representing a 601% increase on the maximum charged two years ago.

Scottish Widows, which is part of Lloyds TSB, has increased its maximum fee by 678% in two years, to £1,999.

Abbey, Nationwide, Northern Rock and the Woolwich (which is part of Barclays) are also culpable.

In addition, some lenders have begun charging an arrangement fee based on a percentage of the size of the loan, with the result that someone borrowing £500,000 pays five times as much as someone borrowing £100,000.

Whilst it is clear that the cost of arranging a mortgage cannot have risen by £2,500 in two years, it can also be argued that it may well have fallen because of improvements in computerisation.

Moneyfacts.co.uk, the price comparison website, believes that borrowers are easily misled because they tend to judge mortgages based on the headline interest rate.

Discuss this in the Finance Markets forums

Story link: Mortgage lenders capitalise on fees