Mortgage Application Fees Warning

Mortgage Application Fees Warning

Shadow Financial Treasury Secretary, Chris Leslie, has ignited the debate that we have long known about the lack of transparency of mortgage application fees.

Speaking at the Labour Party Conference this week, Mr Leslie suggested that high application fees could be another mis-selling scandal.

Mortgage application fees are supposed to represent the labour cost involved in processing an application plus other associated costs such as “booking” the mortgage funds if you have a fixed interest rate.

Comment

It is a common occurrence that many mortgage products, particularly fixed fee mortgages, carry an application fee that is payable.   In many cases, the application fee can be in excess of £1,000.

The application fee is in addition to the usual survey fee and in most cases can be added to the loan.

We have long debated with mortgage clients the benefits of a lower interest rate with an application fee versus a slightly higher rate.  The whole process “muddies the waters” for the consumer making it difficult to actually work out whether the mortgage deal is competitive as it is difficult to work out the real impact of the application fee over a 10, 15 or 20 year period.

When advising clients on mortgages, we always compare the total cost of a mortgage over the period including application fees.  This gives a real picture of which mortgage is more competitive.  The problem with these calculations is that the mortgage on average only runs for an average of 5 to 7 years.

• People move home
• People switch mortgages after the end of their fixed rate or tracker/discount rate period.

The key here is to compare figures at say 5 years.  How much have you paid?  Did the lower rate with an application fee work out lower or higher than a more transparent rate with a slightly higher interest rate.

We offer a service to help you compare and calculate the best value for money mortgage deal, not just over a 25 year mortgage term but also over say a 5 year period.  Contact the team for mortgage advice on mortgage deals and mortgage application fees.