It’s no wonder pundits have claimed there is too much smoke and mirrors in mortgage pricing. Philip Williamson, former chief executive at Nationwide, said just that in his final week in the job in March, adding that the financial services industry needed more transparency.
Take Bradford & Bingley. It changed the fee on its 4.99% two-year fixed rate earlier this month from £1,499 to 2%. On loans below £75,000 this will lead to a reduction in price and will be useful for small mortgages.
But on a £100,000 home loan, it represents a jump of over £500 and the fee increases with the loan amount. The lender has also sought to keep its rate below 5% to make it still seem attractive, rather than openly up its prices.
Over the past few weeks the cost of mortgages has soared because swap rates are spiralling out of control, so lenders have to increase prices. No-one is arguing against that, just the manner in which it is being done.
Many brokers and borrowers don’t like arrangement fees because when added to loans they dramatically increase costs. Taken literally, they are a rip-off as it doesn’t cost B&B £2,000 to arrange a £100,000 loan, for example. But when lenders launch products with cheap rates and high fees, there’s often demand for them, so they provide choice.
The ‘arrangement’ part of the name is outdated and should be replaced, as it has become a separate fee to be used in conjunction with the rate.
But these shenanigans have made brokers more valuable than ever, with thousands of deals available and lenders manipulating charges to stay at the top of best buy tables.
Moneyfacts.co.uk stated this month that the last time interest rates stood at 5.5% was May 2001.
But back then, arrangement fees barely top-ped £300, making it easier to compare deals, al-though no doubt the pro-arrangement fee lobby would argue that it also meant less choice.
Not all lenders are guilty of the smoke and mirrors app-roach. Nationwide is one of the more transparent firms when it comes to pricing and is at the forefront of a campaign to highlight the iniquities of higher lending charges. It is the only organisation not to add the typical 2.75% commission to credit and debit card transactions made abroad.
In an era when treating customers fairly is so important, maybe other lenders could learn a lesson from Nationwide instead of leaving a bad taste in their customers’ mouths.