Ban home loan fees, whatever they're called

Lenders admit they charge excessive fees so they can lower the headline rate

Simon Read
Wednesday 05 November 2014 01:00
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Anyone who’s taken out a mortgage lately will have been charged a fee.

Fair enough, you might think, after all lenders have plenty of administrative paperwork to sort out. Why shouldn’t they charge for that?

But the charge isn’t to cover a lender’s costs, despite some of our leading banks charging what they call an administration fee. In truth it’s a shabby way to trick borrowers into paying more for their home loan than they need to.

How do I know this? Lenders have freely admitted it to me. They charge excessive fees so that they can lower the headline interest rate they offer. That helps push their deals up the best buy tables which in turn allows them to attract more business.

In short, it’s just another way to market their loans. But the net effect is confusion among borrowers. They rightly ask how it’s possible that a loan with one of the lowest interest rates can be one of the most expensive deals?

Even when borrowers understand that they have to look beyond the headline rates to find the true cost of a mortgage lies the fact that lenders then confuse them even further by dressing up these extra charges with ever-more confusing names.

Which? reckons there are more than 40 different names for these lender charges. As well as the fairly standard “administration fees”, lenders are charging “application fees”, “assessment fees”, “arrangement fees”, “booking fees”, “product fees”, “reservation fees” “completion fees” and “mortgage questionnaire fees”.

There’s even the ridiculously prosaic “lenders’ fees”.

They’re all designed to hide the true cost of a mortgage from us and, for that reason, should be banned. Borrowers should be quoted the true cost of a mortgage upfront so they can compare different deals. It’s time for the authorities to put a stop to these sneaky and unnecessary charges.

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