Which? says confused borrowers are paying over the odds on their mortgages – and is calling on Chancellor George Osborne to make changes.
The consumer watchdog’s latest research on the mortgage market found:
- More than 40 fees and charges across the market, including set-up fees, arrears fees and final repayment fees.
- Providers using different names for the same or similar fees – a booking fee can also be called a reservation or application fee.
- Duplication with some lenders charging more than one set-up fee.
- Increases to the cost of some fees – the average arrangement fees have almost doubled in the last five years, from £878 in 2009 to £1,588 in 2014.
- A wide variation between lenders in the cost of the same fees, suggesting that fees don’t always reflect the true cost the lender incurs.
- A lack of clarity which makes it difficult for borrowers to tell if the fees are avoidable.
The research also shows that consumers borrowing £100,000 over two years could save as much as £1,503 if they took into account the set up fees rather than choosing the product with the lowest interest rate.
Which? says the “vast array of confusing fees and charges” – which aren’t always reflected in the standard APR (Annual Percentage Rate of Charge) – mean borrowers are still unclear on what the best deal is.
According to its research just 3 per cent of people could correctly rank the cost of five two-year fixed-rate mortgage deals when displayed using typical information, including APR. This rose to 36 per cent when presenting the total cost of the mortgages over 24 months.
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The consumer comparison services says it wants George Osborne in his forthcoming Autumn Statement to:
1. Make mortgage price comparison easier: Given the limitations with APR, the Government and the FCA should explore other ways to present the total cost of a mortgage.
2. Make the full cost of a mortgage clearer now: All compulsory fees payable throughout the deal period should be expressed as a total of fees and included in the advertised costs. It should also be clear which fees payable over the life of the mortgage are compulsory and which are not.
3. Ensure additional fees are cost reflective: Non-product fees and charges that are incurred after the purchase of a mortgage should reflect lenders’ actual costs.
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