After completing research on the terminology and descriptions used by lenders to justify mortgage application fees, the consumer group Which? and the Council of Mortgage Lenders have been backed by the Treasury to formulate guidelines for UK borrowers to tackle this aspect of the mortgage minefield. The aim will be to simplify the way that lenders describe charges, and to encourage a standardised system across the market.

The Which research considered the various fees and charges that the majority of UK lenders employ during the mortgage process, noting that in most cases there are a lack of clear and transparent explanations for particular costs and the reasoning for their existence. Borrowers were canvassed by the group to compare several options from the market, in order to evaluate their understanding of which deal offered the best value. Which noted that, “Just 3 per cent of people we tested were able to correctly rank five two-year fixed-rate mortgage deals in price order.”

Commenting on the findings, the CML director general, Paul Smee, said: “With the largest and most competitive mortgage market in Europe, UK customers are well served for choice. We recognise that for this choice to bring the greatest benefit, consumers need to be able to understand and compare products confidently.”

The expectation is that an updated report will be provided by the 2015 budget, with the structure to be completed within the next 6 months. Industry insiders hope that the process will force lenders to clean up their methods, but some believe it is unlikely to reduce the level of charges seen.

Mark McBurney, a mortgage broker for Mortgages Made Easy, said: “It is common knowledge in the market that lenders make up the majority of their profit arranging a mortgage via the set up costs. It would be great to see a consistent approach applied to tackle the jargon lenders use to justify these costs, but as has been seen before, they are unlikely to completely relinquish the practice of making questionable charges for their services.”

Advisers have levelled a clear swipe at lenders standard variable rate pricing, noting that recent drops to headline fixed rates appear to be offset against disproportionate in-house SVR’s. The Bank of England released data earlier this month that the average SVR had risen this year from 4.41 per cent to 4.53 per cent. During the same period, the average two year fixed rate in the market fell from 2.76 per cent to 1.88 per cent.

Butler commented on the matter, stating, “Gone are the days when the sudden decrease to the Bank Base rate in 2008 allowed many existing borrowers to enjoy a low SVR. While banks appear set on battling over fixed rate pricing, they are feeding the coffers to continue the struggle, by taking significant profits from borrowers stuck on or unaware that their SVR is significantly higher than alternative options.

“This smacks of the same age-old attitude on the part of lenders to reap profits while the chance is there to do so. The worry in this practice is that any marginal or significant rise in rates could put a great deal of borrowers in a precarious position regarding their mortgage repayments.” 

Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy

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