Non-refundable fees could leave borrowers out of pocket
More mortgage lenders are expected to introduce non-refundable fees on house purchase loans that could leave borrowers seriously out of pocket if the deal fails to complete.
The warning comes after Abbey introduced a £150 non-refundable booking fee across its mortgage range last week. Prior to this move, Lloyds TSB was the only other major lender to keep hold of booking fees on mortgages that fail to complete.
Brokers say other lenders are likely to follow suite.
"Another week, another kick in the teeth for mortgage borrowers,” says Drew Wotherspoon, of brokerage Charcol.co.uk. “Consumers have been king for many years now, with lenders fighting for their business, often at loss leading rates, but that has been consigned to history and these booking fees are another stark reminder of that.”
Although these booking fees will be refunded if a borrower is turned down for a mortgage, if the deal fails to complete for any other reason then customers have slim chance of ever seeing the money again.
Wotherspoon adds: "There are many things that can happen during a mortgage application that may result in a borrower being unable to complete, a great deal of which a lender can be accountable for. Traditionally, this has not cost borrowers anything other than wasted time and maybe some legal fees.
“However, should they not complete on a mortgage with an up front fee now, it will cost them actual cash. It's just another thing to think about in a market that is becoming increasingly challenging for all types of borrowers.”
Abbey has also made other changes to its fee structure that means customers borrowing 95% of a property’s value will no longer be able to add their booking fee to the loan.
Louise Cuming, head of mortgages at moneysupermarket.com, says the move has been driven by falling house prices.
"I fear this will be a growing trend leaving applicants for 95% products not only needing a 5% deposit, but savings to cover fees, stamp duty and solicitor costs as well,” she adds. “Financially, borrowers will be better off in the long run if they do not capitalise fees.
“However, for cash strapped first-time buyers having to find this amount up front is yet another hurdle on the way to home ownership."
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.