Mortgages. Rising add-on charges beat inflation

Everyone’s doing it – remortgaging rather than sticking with the same old mortgage provider that just isn’t competitive compared to all the new deals. Well okay, not everyone, but enough for the lenders to sit up, take notice, and start introducing some additional charges to make sure that they don’t end up out of pocket. There are a lot of good deals out there, you may see an opportunity to remortgage for 4.4 on a two year fixed interest contract. But there will be other charges for you to pay, and the small print will no doubt reveal that you will also be penalised if you decide to remortgage again when the two years is up. It’s essential that you find out what these costs are before taking the plunge, as it may not be worth it. The lenders have upped some of their charges as a reaction to the trend towards remortgaging, the people they call ‘rate tarts’. The aim is to charge people for leaving their mortgage, although the new customers they receive will not be penalised, until they leave that is. However, with the remortgaging business as big as it is, with 1.1 mortgage holders switching lenders in 2005, it’s no surprise that the lenders want to cash in. In total, £117 billion worth of money moved from one lender to another in 2005, so there’s a lot of money to cash in on. We think that some companies are going way too far though – we found one mortgage whose additional charges added up to £1,000, and that was only to move to another mortgage within the same company. The lenders are adding on charges wherever they can. Here are some examples: §administration charges - charging customers a set rate for a letter or phone call. With one lender, it would cost you £35 to receive a photocopy. §increased valuation fees, §increased penalties for paying off early (known as early redemption penalties, §an admin charge for leaving the mortgage – called an exit fee. It’s the exit fees that lenders are focusing on as a new way to cash in on remortgagers. The increases are far above the rate of inflation, for example both Natwest and the Royal Bank of Scotland, big players in the mortgage industry, have put through increases of 125 on exit fees. They were £100, now they’re £225. Barclays Woolwich were charging £195, now they’ve leapt up to £275. Halifax was charging £100, now it’s £175. Nationwide have taken notice too – they never even used to put a price on for people leaving their mortgages, now they have introduced an exit fee charge of £90. Lenders are disguising these charges by using completely different terms for them – there are no standards terms so it’s hard for customers to know exactly what they mean. We found that the same fee, an exit fee, was described by various different companies as: booking fee, product fee, application fee and completion fee. So it’s hard for borrowers to compare like for like. Because it is getting increasingly difficult for borrowers to make comparisons, we think the Financial Services Authority should interfere and force lenders to use the same standard terms. People are just getting confused with the current practices.Nationwide Building Society has noticed: ”The mortgage 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”. However, it obviously feels that some kind of fee is justified as it has recently introduced one itself.The Halifax denies that it’s doing anything wrong with the following statement: “Our fees must be amended from time to time to reflect the rising processing costs”. We all know that inflation cannot explain the huge rises in its charges, both their arrangement fee and exit fees have increased by 25 and 75 respectively in the last two years. With an average rise of 50, we would be interested to hear just how these kinds of rises can be properly justified.

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