Rachel McKay, mortgage analyst from moneyfacts.co.uk, is warning consumers of percentage based mortgage arrangement fees and the shift towards these being charged as a percentage of the mortgage advance.
McKay says: Generally, the mortgage arrangement fee pays for the time and administration costs for the credit score; assessment of application and personal details to ascertain whether it is appropriate to lend.
This type of fee is also sometimes used to reserve mortgage funds for a customer, and is especially important if the lenders tranche of funds, available at a preferential rate, is running out.
Lenders will have their own individual lending policies and credit scoring systems and thus their own level of arrangement fees.
There are a couple of areas that consumers need to be aware of with arrangement fees, namely that this fee may be payable upfront at the time the application is submitted and not given back should the application not proceed. Also, the client must remember that if these fees are added to the advance they are part of the advance and are subject to interest being charged.
Lenders margins are getting ever tighter and consumers are more likely to switch lenders to obtain the best deal these are the reasons that fees are increasing. If you think about it, with the advent of new technology and a paperless office there should be less work involved for lenders and the cost should really be reduced accordingly.
The size of the loan should have no bearing on the administration time involved in a mortgage application as long as the LTV and income multiples fit the lenders criteria.
With property prices at a near record levels, the trend towards fees charged as a percentage of the mortgage instead of a flat fee is both a worrying and expensive one for the consumer.