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Reduce rip-off mortgage fees, Darling tells banks
Nicholas Cecil, Political Correspondent24 Jun 2008
Alistair Darling today warned mortgage lenders not to rip off borrowers with huge arrangement fees.
The Chancellor revealed he is in talks with the financial watchdog over what level of charges are justified.
"I'm very concerned that people ought to be treated fairly, especially people coming off fixed rates and going onto different rates," he said.
"We have met the Council of Mortgage Lenders to try to reach an agreement to ensure that people are treated fairly, but if that isn't happening I will ask the FSA to pursue the matter."
In an interview with the Northern Echo, he added: "Everybody accepts there are costs that have to be met when they change over, but I think we have to make sure people are treated fairly and are not taken advantage of."
Mr Darling stopped short of putting a figure on what he believes is a fair arrangement fee but he added: "It's something I'm discussing with the Financial Services Authority."
In past years homeowners often paid an arrangement fee of around £400 to arrange their mortgage.
These charges have now soared to £1,000 in many cases and up to £2,500 for people with poor credit history - as lenders load costs onto the fee to keep down their interest rates, allowing them to soar up the mortgage best deals tables.
The Council of Mortgage Lenders, though, said borrowers could still pick from a "good choice of mortgages, including hundreds of fee-free deals".
A spokesman added: "There is still a wide choice between mortgages with lower arrangement fees (and a potentially higher interest rate), and those with higher fees (often with a lower interest rate). What it is important to understand is the overall cost of the mortgage, taking into account both fees and rates - and the key facts document, given to all customers before they apply for a mortgage, provides this."
Mr Darling rebuffed suggestions that a limit should be imposed on fees as this would restrict customer choice.
Many homeowners are seeing their monthly mortgage payments rise sharply as they come off fixed-rate deals taken out two or three years ago.
Two of the biggest mortgage groups yesterday confirmed increases to their rates as lenders continue to pass on higher borrowing costs to homeowners.
Halifax, which provides a fifth of new mortgages, raised the cost of half of its fixed-rate products by up to 0.5 per cent, while five of its trackers have been increased by 0.3 per cent.
Lloyds TSB increased its fixed rate deals by 0.3 per cent, to give a two-year fixed rate mortgage of 6.44 per cent for people borrowing 75 per cent of their home's value, rising to 6.75 per cent for people borrowing 90 per cent.
Halifax blamed the move on the rising cost of borrowing through the wholesale money markets.
A Halifax spokeswoman said: "Over the past few weeks, most major lenders have increased their pricing on a number of occasions. Wholesale money is very expensive.
"Unfortunately, increased costs have to be passed on to new customers by banks and building societies."
The group's new rates, which came into effect on Saturday, leave a twoyear fixed rate mortgage for someone with at least a 25 per cent deposit who is paying a £1,499 arrangement fee at 6.99 per cent, compared with 5.59 per cent at the beginning of the year, despite the Bank of England base rate being cut twice since then.
Reader views (6)
Why would anyone want to buy a house at present.
The fees are required because the banks are skint.
- Np, Cornwall, UK (Until the food runs out), 24/06/2008 22:44
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or perhaps its simply the banks way of saying "We don't want your business", get the message!
- Steve, lancashire, 24/06/2008 21:09
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It will be extremely interesting to see a "full breakdown" of ALL the component parts Halifax's £1,499.00 arrangement fee!
- Fraser, Telford Park, 24/06/2008 12:11
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How about this? Yesterday I tried HSBC's rate matcher mortgage deal trying to remortgage at my current 4.79% and they quoted me a setup fee of £5899! I have a perfect credit rating and earn good money and I consider that to be daylight robbery.
- Paul, Bromley, 24/06/2008 12:11
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This is a bit choice! Alistair Darling owns Northern Rock so why does he not make their arrangement fees so attractive that new borrowers go their. That would soon bring the competition into line.
- Paul, London, 24/06/2008 11:43
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So why doesn't he take the lead and reduce the burden of stamp duty?
- Scott, Loughton, Essex, 24/06/2008 10:35
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