Review: Fees


Quick decisions and turnaround can really help by Charles


Haresnape, managing director, residential mortgages, Aldermore


Tere have been plenty of headlines in recent weeks about how lenders have been increasing arrangement fees to compensate for record low mortgage rates. At the time of writing ac-


cording to Moneyfacts, the av- erage arrangement fee is now £1522, up by £112 in the first three months of this year alone. Now despite some negative


tones in the headlines, there is nothing wrong with “chunky” fees in themselves, so long as the overall proposition pro- vides good value. Indeed, a broad range of fee levels and structures in the marketplace is a positive bonus, provid- ing wider choice for consum- ers and a greater likelihood of finding a product that exactly suits a buyer’s needs. And let’s remember that


mortgage rates are, overall, at their lowest levels ever, and in many cases customers are get- ting unprecedented value for money. But the added complexity


caused by rising arrangement fees is a concern for the pub- lic. It means that it is becom- ing considerably more difficult for buyers to scour the market and calculate which is the best deal, which plays brilliantly into the hands of brokers but does not sit well with the pub- lic more broadly.


Chasing the dragon An unhealthy obsession with best-buy tables and headline interest rates does not help. In


fact, from a buyer’s perspec- tive, doggedly chasing the lowest rate may even increase the chances of ending up with a rejection, since many of the lowest deals have some of the toughest criteria.


“It’s not just the size of fee that matters, it’s the type of fee”


So let’s outline the basics.


Some homeowners are rightly happy to stump up a sizeable fee to keep their rate – and therefore their repayments – as low as possible for cash-flow reasons; if money is tight on a week-to-week basis, it makes sense to keep monthly pay- ments to a minimum with the lowest possible rate. And for these borrowers it’s right that they have the option of paying a larger than average fee for a lower than average rate.


Chilled But I would suggest that the majority would be better ad- vised taking a more holistic view, calculating the overall cost over the term of the deal and opting for the best value over time. Readers of this column will


not need reminding that a lower rate with one borrower can cost


substantially more


over the term of the deal than a higher rate and lower fee with another provider. But it’s not just the size of


fee that matters, it’s the type of fee. Some are calculated as a percentage of the amount bor- rowed, others levied as a flat cash sum. Somebody taking out a large loan is clearly better


18 MORTGAGE INTRODUCER SEPTEMBER 2013


off taking a flat-fee deal than one with a percentage-based fee. Tese are all elements of the argument that buyers need explaining to them in order to come to the best conclusion.


Best of both Ideally, a lender should offer both to give buyers maximum flexibility, and at Aldermore we happily offer both percent- age-based and flat-rate fees to our residential and buy-to-let customers. In addition, the focus on ar-


rangement fees gives a slightly distorted picture of the market because in many cases there are fee-free deals available. We currently offer a three-year fix and a term variable rate for remortgages with no legal, val- uation or arrangement fees at all, and just a £99 booking fee. And while some banks are


hiking fees, we’re cutting rates. We’ve reduced our five year fixes which are now available from just 4.68% to 75% and 4.88% to 80%. Meanwhile our buy-to-let term variable rate of 4.98% is proving incredibly popular with brokers - even with its £1,999 fee - because apparently cheaper deals on the high street are simply inac- cessible for so many applicants because they are failing the underwriting test for one rea- son or another. Which brings me on to a


crucial – if oſten overlooked – aspect of the mortgage deci- sion, and that’s the overall ser- vice proposition provided by the lender.


Wasted As competition in the market- place hots up, we are seeing some lenders increasing their LTVs up to 90 or 95%. Tis is


attracting a lot of interest from buyers without a large deposit. But the trade-off is that credit score requirements have risen as well. In other words, buyers with even slightly blemished credit records are having their applications turned down. Tis wastes time for buyers and brokers alike. Our experience suggests


this is on the rise because we are seeing an increasing num- ber of perfectly decent bor- rowers rejected by the high street lenders and turning to us for help. While we are a prime lend-


ing bank, we have adopted a more common-sense ap- proach to our underwriting. We don’t judge on credit


scores, we judge on the overall creditworthiness of the bor- rower. It’s not the score that matters it’s their financial be- haviour over time.


Blemish Aſter the worst recession in history, there are an enormous number of people looking to buy who have a smudge or two on their records and this requires a more flexible ap- proach to underwriting. In our view a missed credit card pay- ment doesn’t necessarily make somebody a bad risk. Indeed, many people emerging from a torrid recession are now thriv- ing and our experience so far suggest that our underwriting approach is spot on. So we won’t be changing


our strategy: we’ll continue providing a range of rate and fee combinations to give bro- kers and buyers maximum choice, with a quick decision and turnaround to help you complete the deal as efficient- ly as possible.


www.mortgageintroducer.com


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