House-buyers could save thousands as a new “tariff of mortgage charges” is launched, introducing a standard format for how lenders communicate fees.
The majority of banks and building societies have agreed to use the same names for fees and will list the charges in the same order to make it easier for house-buyers or people looking to remortgage, to compare products.
The move follows a campaign by consumer watchdog Which? which warned that borrowers were “paying over the odds” for mortgages due to complex charges. The campaign found that lenders frequently used the terms “booking fee”, “reservation fee” and “application fee” when referring to similar things.
Research linked to the campaign revealed that a house-buyer with borrowings of £100,000 over two years could save £1,503 if they were to take set-up fees into account, rather than pick the mortgage with the lowest interest rate.
More than 40 different types of fees were being charged in 2014, according to the research. The new tariff is being launched by the Council of Mortgage Lenders (CML), which represents 95% of lenders, and consumer organization Which?
Paul Smee, director general, CML said:
"Lenders have successfully pulled together to put in place some sensible measures to help consumer understanding. We very much hope that the new tariff and standard terminology will make it demonstrably easier to understand and compare mortgage costs."
Trials have already shown that borrowers find it much easier to compare costs under the new system. So far, 85% of lenders have signed up to the scheme and the CML is confident that others will join soon.
Following an initial request from Chancellor George Osborne, asking the CML and Which? to compare the costs of mortgages from different lenders, a report outlining the effectiveness of the new system has been sent to the Chancellor’s office, and will be published in the Autumn Statement this Wednesday.
Building society Nationwide and major banks Barclays, RBS and HSBC have all assisted in drawing up the reforms. They have adopted simpler phrasing and will publish the new tariff on the websites by the end of the year.
Steve Olejnik, sales director of Mortgages for Business, said:
“We really welcome the introduction of this new tariff. Previously, the wide range of fees and charges made it difficult for borrowers to compare products. We’ll be making sure we update the information we give to our customers in this regard.
“On our website, we already provide our customers with a list of the fees they can expect to encounter during the buy to let mortgage application process.
Mortgages for Business has long recognised that headline rates are not the whole story. Since 2013 it has been tracking the costs associated with taking out a buy to let mortgage, so that borrowers can get a better idea of what to expect. In Q3, our Buy to Let Index found that on average, fees and charges added 0.48% to the published headline rate.”
When talking to customers, consultant mortgage brokers at Mortgages for Business use Mortgage Flow, a bespoke BTL sourcing system which finds and compares rates including fees.
Mr Olejnik concluded:
“The system can calculate how much a borrower will pay over a product’s initial term, for example, over one, two, three, five or 10 years, which means that rates - including fees - can be compared more effectively."