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Harris turns the tables on sky-high fees

Savills Private Finance managing director Mark Harris has sparked fierce debate by claiming that mortgages with high arrangement fees should be dumped from best-buy tables.

He says lenders that use such tactics are acting against the spirit of FSA regulation and tempting borrowers and brokers into deals that look cheap but end up costing more than they expect over a 25-year term.

Harris in particular directs his ire at Halifax’s two-year fix at 4.49 per cent with a fee of 1,499. He also cites Portman, Northern Rock and Bristol & West for charging 1.5 per cent of the mortgage on rates from 4.48-4.59 per cent which transforms the true rate to 5.23-5.34 per cent.

“These practices have nothing to do with transparency or simplicity and go against the spirit of FSA regulation,” says Harris.

Others defend lenders’ practices and insist that the best-buy tables present a valuable tool for consumers.

John Charcol spokesman Drew Wotherspoon says: “I am not sure why Mark is saying this. The fundamental thing people should consider is the size of the loan. We have a lot of clients with big mortgages and that fee is irrelevant if the rate is 30 basis points lower.

“I think there is a market for those loans as they are good for some people and these products do not make it on to the best-buy tables. The vast majority of brokers will tell you if it is the right or wrong product for a borrower. Some are a solution for those with large loans.

“Sometimes products make it into the tables when they should not,so some of Mark’s points are valid.”

Accord Mortgages managing director Linda Will says: “For some of those products, people are willing to pay more up-front and for other people it is vital to keep payments as low as possible. It is horses for courses and it is a nonsense to say it is fully in breach of the spirit of FSA rules. It is also transparent.

“I have some sympathy with Mark but at the end of the day you design a product to best suit the customer. It is not a case of treating customers unfairly. As long as it is transparent, it is OK.

“To make a return, there are about half a dozen things you can play about with to create the product. There are the fees, the rates, insurance, cashback and free legals. It is a matter of customer and broker choice.”

Despite the criticism, a look at the Daily Mirror last Wednesday seems to show that there are occasions when consumers are not given the full facts in best-buy tables.

The mortgage tables clearly show the rate, with Portman top of the fixed mortgages, and also the standard variable rate, duration of offer, maximum loan to value, fees and early redemption charge.

But a glance further down at equity-release rates only shows the rate, with GE Life ranked fourth cheapest at 5.95 per cent even though it is considered the cheapest by brokers as, unlike some of its competitors, it shows annually compounded rates which are considered as more transparent.

Defaqto, which compiles many best-buy tables, admits that it encounters problems in including as much information about products as it would like because it does not have the space in newspapers. Spokesman Chris Johnston says: “If it is not one thing, it is another that people complain about. There is not a lot of space so you are hampered by what you can put in. Best-buy tables are an art and not a science and it is a question of which point of view you take.

“With mortgages, you have a lot of conditions attached to them and commitments like household insurance and you may also have early repayment charges. It is a question of how you present things. We put fees and redemptions in the newspapers and we have addressed those concerns to give a balanced picture but that is not always possible. We are aware of the concerns and are trying to help.”

This issue is nothing new but it is the platform that Harris chose to air his views – his monthly column in Money Marketing – and the strength of his feeling that has brought it to the fore.

The most recent high-profile example of discontent at the way lenders market their products to fit the best-buy tables came from BBC Money Box presenter Paul Lewis, who attacked lenders’ practices in his speech at the Council of Mortgage Lenders’ annual lunch in March, claiming they are guilty of hiding charges.

Halifax, one of the lenders implicated by Harris, has hit back at the criticism by insisting it offers choice for customers and that borrowers can opt for a lower fee and higher rate if they wish.

Alexander Hall chief operating officer Andy Pratt doubts that any broker worth their salt will use best-buy tables as the be-all-and-end-all but he stresses that brokers need to be aware of them because customers will ask questions based on what they have read in the newspapers.

Pratt says: “Lenders without a high profile will try to position themselves in the best-buy tables that way as that is their way of marketing to brokers and the customer.

“I think it is unfair to level criticism at Halifax because it has made great moves to show it is becoming more broker-friendly. The ones that do it intentionally try to squeeze more out of a product launch as they do not have such a high profile with brokers.”


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