Brokers and lenders have rejected claims by Labour that high mortgage fees could be the “next big scandal”, and say they demonstrate a lack of knowledge of how the mortgage market works.
At a fringe event at the Labour party conference in Brighton last week, Shadow Treasury financial secretary Chris Leslie called on lenders to inform borrowers about the impact of rolled up mortgage fees every year and not just at the start of the term.
He said he was worried about the fact that extra charges can be rolled up as part of the mortgage loan, and that borrowers do not understand the true cost of moving their mortgage when costs such as exit fees and arrangement fees are taken into account.
Leslie said: “One of the next big scandals to come could be mortgage exit fees and some of those charges.
“Superficially bank rates appear to be ultra-low but people may be under the impression this is normal. At some point interest rates will rise and when people try to change their mortgage they will realise it will be incredibly difficult because the costs have not been thought through properly.”
He added: “More information and transparency is vital and I think instead of telling people at the beginning of a mortgage what the scenarios are for various interest rate possibilities, every single year a mortgage lender should tell customers what their scenarios are.
“It should be something which is managed year by year for customers and not just forgotten about because that is one of the biggest scandals around the corner.”
John Charcol senior technical manager Ray Boulger says borrowers are already provided with sufficient information on fees.
He says: “Mortgage fees are clearly disclosed on key facts illustrations. I have not come across any case where disclosure of fees does not meet FCA requirements so how on earth Chris Leslie thinks there can possibly be a mortgage fee scandal I have no idea. It merely demonstrates his lack of knowledge of the mortgage market.”
Perception Finance managing director David Sheppard says: “As we all know, the KFI outlines everything the client needs to know at application. Any extra fees would be for ancillary services such as changing details around the mortgage, changing from fixed to tracker rates etc and no customer would expect these services to be free.
“It would not be possible for a lender to outline every single potential fee that could be charged over the course of a mortgage but when a fee is levied, there is always full disclosure. Fees are justified by the fact they help to lower the mortgage rates paid by borrowers and by the availability of no-fee options. So I do not agree in the slightest with Leslie that there is a mortgage fee scandal on the horizon.”
Trinity Financial product and communications manager Aaron Strutt said Leslie may be trying to argue that borrowers would find it difficult to work out the total cost of their mortgage, including fees, at the end of their term.
But Strutt says even if borrowers wanted to do this – and he is not sure they do – the nature of the mortgage market and that people may remortgage several times during a 25-year term mean it would be difficult to bring complaints now about past charges.
He says: “It sounds like Leslie is saying consumers have a genuine grievance when it comes to fees but the disclosure is already in place to make sure everyone knows what they are signing up to. If someone does come to the end of their 25 or 30 year mortgage and wants to calculate the amount they have paid in charges, how do they retrospectively claim back on that? In truth, I cannot imagine anyone would actually take that action.
“I don’t think Leslie really thought this through, it just seems like an attempt to get press coverage.”
Council of Mortgage Lenders spokesman Bernard Clarke argues Leslie’s recommendation to inform borrowers on an annual basis about interest rates and charge could end up doing more harm than good.
Clarke says: “Everything is made clear to the consumer upfront, in terms of fees and charges. The suggestion that this information should be repeated needs to be challenged. First of all there are costs associated with it, and more importantly there is the potential for that kind of information to cause confusion among consumers.
“It is quite possible the customer will misinterpret the information as a change to their original terms and fees when in fact it was just a reminder of something they already knew. The real point is there must be adequate disclosure upfront regarding fees, which there currently appears to be.”
Clarke adds the range of fees currently available provide more choice to borrowers. He says some borrowers would prefer lower upfront costs with a higher rate, and vice versa. Because different fees options will suit different people, lenders and brokers will have explained to them why certain fee arrangements work for them.
Precise Mortgages managing director Alan Cleary says: “This is an odd statement from Leslie as the mortgage market is a heavily regulated industry. The KFI states all the necessary information before anything is ever signed and borrowers receive an annual statement . To be honest these comments smack of someone who has never even had a mortgage.”