Lenders predict hike in mortgage fees
Share
Major lenders are expecting to increase mortgage fees in the coming months to compensate for a reduction in spreads, data from the Bank of England reveals.
In its latest Trends in Lending report, which draws on lending data from Santander, Barclays, HSBC, Lloyds Banking Group, Nationwide and Royal Bank of Scotland until the end of September, the Bank provides further analysis of its Credit Conditions Survey published at the beginning of October.
Today’s Trends in Lending report reveals that the major lenders are forecasting an ease in spreads over the next three months, which would ordinarily mean better priced mortgage products.
Lenders have also pointed to a more competitive mortgage market, although this is mainly directed at the lower LTV ranges.
But the report also says that lenders are moving towards an increase in fees in the next three months to counter narrowing spreads.
It says: “The Credit Conditions Survey indicated expectations of increased mortgage fees incoming months, suggesting that, in aggregate, any reduction in spreads could be associated with higher fees.”
The Bank says that lenders’ appetite to lend may be supported by the reduction in arrears reported in the Credit Conditions Survey, though lenders still expect arrears to climb further.
The net balance of lenders in the Credit Conditions Survey expected credit availability to rise slightly over the next three months, driven by perceptions of an improved outlook for the economy and house prices.
But despite wholesale funding conditions easing, lenders do not think any of these factors will be enough to materially improve credit availability in the coming three months.
The Bank reports that some major UK lenders have been encouraged by Lloyds Group’s issuance of mortgage-backed securities and Barclays’ issuance of covered bonds in recent weeks, though for most lenders those issues were reported not to have materially changed their view of future mortgage funding availability.
Some major UK lenders have previously reported that the delay between approvals for house purchase and gross lending was showing signs of being more protracted than usual.
But in recent discussions, some lenders thought the relationship between the two now appeared more in line with historical experience.
The Bank says that a number of the major UK lenders remained cautious about prospects for a continued recovery in the housing market.
Michael Coogan, director-general of the Council of Mortgage Lenders, says: “As we have previously surmised, the Bank report confirms that September saw a continuation of the two-speed mortgage market, with lending for house purchase continuing to increase but remortgaging remaining weak.
“But as we have also highlighted, funding conditions remain challenging, despite the encouraging signs of a slight thaw in wholesale funding markets.
“Today’s report very much confirms our own assessment of market prospects - the most likely scenario is a slow and long-drawn out recovery.”
If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat
View results 10 per page | 20 per page
Readers' comments (11)
Anonymous | 22 Oct 2009 11:47 am
I don't know how lenders can justify the extortionate charges they are already majing. Nationwide, for example, hiding under the respectabilty of Nationwide charging an absolutely disgusting 3% fee on an 18 month deal The margins being charged by lenders is probably higher than ever yet they are charging higher than ever fees. Time for the Government to get a grip
on these money making machines, which they have bought on our behalf.
Unsuitable or offensive? Report this comment
Anonymous | 22 Oct 2009 12:02 pm
I wonder if the FSA will see this as treating customers fairly, I think not!!
Unsuitable or offensive? Report this comment
Fungible | 22 Oct 2009 12:05 pm
I didn't know the government had bought Nationwide. Don't mind the odd rant but do get your facts straight.
Unsuitable or offensive? Report this comment
Victor Jannels | 22 Oct 2009 12:15 pm
I think that we need to look at all of this with a certain amount of perspective. It has been, and will continue to be, a tough market for a while yet. I spoke the boss of a lender recently and asked how current margins were working for them. His response was that they had never had it so good! When I asked why they were reducing payments for introduced business he said, with some relish,'because we can!'
This is a big pool and we all have to find out way round it and surely therefore it is better to work together than look for ways to rape the pool 'because we can'. Or is it just me?
Unsuitable or offensive? Report this comment
Robert Riach | 22 Oct 2009 12:18 pm
In the excitement of buying a new home many buyers tend to forget about the high arrangement fees that some lenders are charging for setting up a mortgage. However, these should be look at before arranging a mortgage as they can add significantly to the overall cost of the loan.
Many lenders have hiked the fees they charged on mortgages as they look for alternative ways to generate revenue. As interest rates have fallen over the last few years, many mortgage providers have introduced mortgage arrangement fees or, increased the cost of existing fees.
Some lenders expect borrowers to pay the arrangement fee when they submit the mortgage application and some fees are not returnable.
Almost all lenders will charge borrowers some form of arrangement fee, and if they don't borrowers will likely pay in some other way or other. Many lenders arrangement fees are graded, so the better the deal you are getting on the APR and/or flexibility of the mortgage scheme, the higher the arrangement fee is likely to be.
I believe that some mortgage lenders are using a combination of higher arrangement fees and lower interest rates to manipulate mortgage comparison tables Some mortgage providers are offering loans at very low rates in order to improve their position in the comparison tables. They then they balance the effects of this low rate by charging a really high arrangement fee.
I have noticed recently that more mortgage products now come with a percentage arrangement fee as opposed to a flat arrangement fee.
These fees vary from 0.4% of the loan to 3% of the mortgage loans. Many of these fees equate to well over £1000 and for people with large mortgages these fees can be into thousands of pounds. The average fee seems to be £995.
It’s not so long ago that fees seemed high at £500. I question do these fees need to be so high? Or are the lenders just assuming that because borrowers can add these fees to the loan that they will ignore them
Most borrowers looking for a mortgage deal tend to focus on the rate offered, but the fee now has to be a major consideration particularly when these fees are often thousands of pounds.
Many borrowers add the fee onto the loan so they don’t feel as if they are paying it, however by doing this they are paying interest on the fee over the mortgager term.
Borrowers requiring lower mortgages may be better taking a mortgage with a lower arrangement fee and a slightly higher rate of interest. Whatever they decide, borrowers and their advisers need to do their mortgage calculations carefully in order to obtain the best deal for the borrowers personal circumstances.
In general, when shopping around for a mortgage or remortgage product borrowers and advisers need to take everything into account, APR and all fees and charges. The best deal may not be the one with the lowest APR. All the other fees and charges can add up significantly over the term of the loan. Also, look out for high redemption fees and exit fees.
Unsuitable or offensive? Report this comment
Anonymous | 22 Oct 2009 12:20 pm
Although there is little sympathy for lenders increasing margin to build capital, strengthen their balance sheets and subsidize their historic loss making lending, the fact is the margins have to grow to solve these issues.
What dumbfounds me is that pre emptive industry PR announcements about across the board price increased just smack of cartel like behaviour. Come on Competition Commission, please stamp out these public 'self serving' type announcements, even if you are happy to turn a blind eye to the covert stuff.
Unsuitable or offensive? Report this comment
richard barger | 22 Oct 2009 12:26 pm
I completely agree with the previous comments. In addition I would like to add that until the products improve at higher loan to value's, first time buyers are increasingly priced out of the market which of course has a direct effect on the rest of the market, all the way up to the top end.
Furthermore I feel it is disgusting that lenders require borrowers purchasing shared ownership and affordable housing to have substantial deposits. Surely these schemes are designed to help those people that do not have the means to raise deposits? With the additional pressure of upfront arrangement fees, high interest rates and a virtually total disregard for developer incentives, how is the market ever going to recover? We need to support the developer now as I don't believe there has suddenly been a U Turn on the need for greater affordable housing.
Will there be enough intermediaries left to provide the ever increasing consumer apetite for 'trustworthy and sound good advice'.
Unsuitable or offensive? Report this comment
Anonymous | 22 Oct 2009 1:02 pm
Differnt day same old story, lenders are as usual seem to be on a different planet to us normal folk, why oh why does no one get involved and get these money sharks sorted out.
Unsuitable or offensive? Report this comment
Doug Bennett | 22 Oct 2009 1:07 pm
May I thank Robert for his educational piece, is the Mortgage Strategy site generally available to the public, or mainly advisers. Vic, you make sense, and confirm what we have all come to know and love about the lenders. I have given up seeing BDM's from lenders, what's the point, invariably my clients would get stiffed by my placing business with the Intermediary Arms of the likes of HBOS, Santander, and RBS. The public need educating on the cost of getting whole of market advice, and when I mean whole of market, I include Direct Deals, now just need to convince my network!!
Unsuitable or offensive? Report this comment
Anonymous | 22 Oct 2009 3:24 pm
No wonder Banker bonuses are back ! it's not just the fees, look at how many still have high SVR's and product pricing is currently a joke compared to the swaps, TCF has gone for a flight as the FSA can read the writing on the wall...
Unsuitable or offensive? Report this comment