New mortgage price battle focuses on fees and charges
Yorkshire and Clydesdale Banks challenge rivals with half-price loan arrangement fees
Saturday 30 April 2011
from next Tuesday borrowers can get half-price arrangement fees at Yorkshire and Clydesdale banks. While it's a gimmicky approach to a major financial decision, it reveals that home loans are beginning to become more competitive and, more crucially, that the focus is moving away from just the headline interest rate on to the total cost of the deal.
The banks aren't the first to slash arrangement fees to encourage borrowers: FirstDirect has been offering mortgages with a £99 fee since last July. But as we hit the prime spring homebuying season, the move signals a new price war, with both new borrowers and remortgagors set to benefit.
The deal cuts the arrangement fee across the banks' range of mortgages from £999 to £499. "We understand the importance of arrangement fees and that's why we're offering half-price fees through to early July," says Steve Reid, of Clydesdale and Yorkshire Banks. "This isn't the first time we have offered this kind of deal, and if it's successful then it's possible that we would extend it to ensure we remain competitive."
FirstDirect says its £99 fee has been a success. "Last year we took the decision to offer low fees across our mortgage range and customers found that the clarity made it easier for them to make their decisions," says Richard Tolchard of FirstDirect.
His mention of clarity raises an key issue. With so many different mortgage deals around, anything which makes it easier to compare deals is good. But as it stands, it's important to look at fees in conjunction with rates. Depending on the size of mortgage you need, you could be better off with a high fee and a low rate, for instance.
"The mortgage fee has more of an impact on smaller loans and shorter terms, whereas with a larger loan, the interest rate becomes more important," says Andrew Hagger of Moneynet. "It isn't as simple as referring to a best buy table, especially as some lenders still launch attention-grabbing interest rates, hoping that it will be sufficient to win custom from those who don't take the time to shop around or use the services of an independent financial adviser or mortgage broker."
For that reason it's important to be wary of half-price fees, warns Drew Wotherspoon of John Charcol. "Taken at face value, the thought of a mortgage lender offering anything at half price seems both appealing and surprising. But, as ever though, the devil is in the detail. The arrangement fee is only one aspect to take into account when considering the right mortgage, with the size of your mortgage and the actual interest rate equally as important. It is vital that borrowers work out the total cost of a loan over the period," he says.
Melanie Bien, of the independent mortgage broker Private Finance, agrees that borrowers should look at the total cost of a deal, and not be swayed by a half-price offer. "When homeowners are struggling with higher living costs and worried about rising interest rates, a half-price offer on mortgage arrangement fees is bound to be attractive. However, borrowers must work out the total cost – rate plus fees – when comparing mortgage deals. "While Clydesdale and Yorkshire are slashing their fees, their rates are significantly higher than the best buys in the marketplace, so borrowers who are tempted by lower fees may end up paying more in the long run."
For example, if you were to take a 90 per cent LTV five-year fixed rate for £200,000 with Clydesdale at 6.69 per cent, you would pay a total of £82,939 over five years, including the £499 arrangement fee. However, Manchester building society offers a five-year fixed at 6.25 per cent for an upfront fee of just £100 more. It means borrowers would pay £79,739 for the five-year period, a total saving of £3,200.
Another lender launching a range of new deals this week was the Coventry building society. However, while some of its mortgages have no arrangement fee, the charge could be as much as £1,999.
"When pricing our mortgage range we focus on providing choice for our members," explains Colin Franklin of the Coventry. "For example, borrowers who need a large mortgage may benefit from a flat arrangement fee, while a borrower who has a smaller loan wouldn't want to pay a large fee to remortgage."
He advises borrowers to look at the whole cost of a mortgage as well as considering the lenders' SVR at the end of the discounted period.
But Andrew Hagger says the range of deals is confusing. "Banks and building societies continue to develop products with profit margins based on various rate and fee combinations but while it may work for them, for the person on the street it's just a big headache," he says. "The sensible option is to sit down with an independent professional adviser to help sort through deals and ensure you don't make what could be a potentially expensive mistake."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Pensioners to be told how long they have left to live to help them plan their finances
Garden city in Ebbsfleet, Kent not enough to solve housing crisis in UK
Should I delay retiring because of the Budget?
How to start your own internet business
Bargain Hunter: The Easter holidays offer some sweet surprises from Playmobil
- 1 Poveglia: 'World's most haunted island' up for sale...is anyone brave enough to buy it?
- 2 The Hobbit: There and Back Again set for possible title change
- 3 Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'
- 4 24 people applied for the 'world's toughest job', here are their interviews
- 5 Andre Johnson: Wu-Tang Clan-discovered rapper severed his penis and jumped from LA building
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
US Navy christens huge $3 billion destroyer ship USS Zumwalt that appears as a fishing boat on enemy radar
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
Nigel Farage fatigue? Half of voters ‘immune’ to Ukip’s appeal
Nigel Farage on Have I Got News For You: Ukip leader ridiculed over expenses and party 'fruitcakes'
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
iJobs Money & Business
£150.00 per week: QA Apprenticeships: This company has been providing on site ...
£221.25 per week: QA Apprenticeships: This company is a well established Inter...
£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...
£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...
Day In a Page
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds