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Arrangement fees warning

Brokers have been warned that advising borrowers to pay arrangement fees upfront could put them at risk of hefty charges if they change their minds before completion.

The problem was highlighted by a broker whose client opted to pay a 599 arrangement fee upfront for a fixed rate product from Abbey. But before this completed, the client changed her mind and decided to go for a tracker product instead, with a 699 arrangement fee that she also agreed to pay upfront.

As it is Abbey’s policy not to refund arrangement fees the client had to pay both fees.

James Light, spokesman for Mortgage & Insurance Solutions, says: “It is a disgrace to treat clients this way and will encourage them to take complaints to the Financial Services Authority and Ombudsman.”

But Ray Boulger, senior technical manager at John Charcol, says brokers need to be wary of advising clients to pay fees upfront. If clients add fees to loans they will not be at risk of losing out if they change their minds because the fees are only charged if the mortgage completes.

Boulger adds that there is a bigger issue concerning arrangement fees and calls on the FSA to look at this in its Mortgage Conduct of Business review later this year.

He warns: “The terms that lenders use vary from arrangement fee to booking fee to completion fee. To call a fee that is added to a loan an arrangement fee is nonsense and confusing to clients. The FSA should consider separate terms that make it clear whether fees are paid upfront or added to a loan.”

Joe Wiggins, spokesman for Abbey, says: “Our arrangement fees are non-refundable as they are a way to get a commitment from borrowers as we are reserving rates for them.”

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