It’s in no doubt that lenders make a lot of money out of the mortgage market.
Now, the big name mortgage lenders stand accused of using underhand tactics to boost their profit margins.
They have done this by raising their mortgage fees by as much as three times more than they were a year ago.
Financial data firm Defaqto says that HSBC, Royal Bank of Scotland (RBS) and Abbey are among the worst offenders, having raised their arrangement fees on some deals by 183%, 110% and 92% respectively in the last year!
Overall, mortgage lenders have raked in £3 million in the last month alone by hiking fees on fixed rate mortgages by an average of £50…
…while at the same time they make covering it up by announcing they are cutting their mortgage rates.
In addition they are also boosting their margins by failing to pass on the full reduction in the cost of wholesale funds, and charging more on unsecured personal loans.
Here are some average fees on fixed rate mortgages from the 3 lenders mentioned:
Abbey - £1,076.10; up from £561.54 in August last year
RBS - £868.23; up from £413.50 this time last year
HSBC - £313.78; up from £111 charged a year ago
The huge fee increases cancel out the benefits of the latest rate cuts.
Take Abbey for example; it has cut the rate on its 3 year tracker mortgage from 5.89% to 5.79%, but raised the arrangement fee by more than 30%; from £1,499 to £1,950.
On a £200,000 loan, the changes result in a mere £9 cut in mortgage repayments to £1,275 a month, if fees are added on.
David Black of Defaqto said:
“Lenders are able to use arrangement fees as a hidden way of boosting the overall cost of the mortgage. It’s worrying that some of the lenders taking the most business have introduced the biggest fee increases.”
The fee rises come amid a frenzy of rate cuts in recent weeks, with mortgage lenders spurred on by sharp falls in wholesale borrowing costs.
However, most lenders have failed to pass on the full reduction to us. Two-year swap rates (used to price fixed rate mortgages) have dropped by 50 basis points in the past month, but the average rate on a two-year fix has fallen by not even 20 basis points from 6.96% to 6.79%, according to price-comparison website Moneyfacts.
Those of us that are homeowners are not the only ones to suffer; mortgage lenders have raised rates on unsecured loans by an average of 2.6% since the last time Bank rate was at its current level of 5%, Defaqto said.
In December 2006, the average loan rate was 8.7%; 2.6% higher than the present average of 11.3%. The best-buy rate on a £5,000 loan now costs £277 more over four years.
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