Alistair Darling slams "rip-off" mortgage fees

Jun 24 2008 by David Bartlett, Liverpool Daily Post

CHANCELLOR Alistair Darling last night told the Daily Post that he was calling a halt to “rip-off” mortgage arrangement fees of up to £2,500.

Mr Darling said homeowners were being “taken advantage of” by lenders, and revealed that he was ordering them to slash the charges, which have escalated by up to 600% in two years.

The Chancellor said he was “very concerned” that hard-pressed borrowers coming off fixed-rate deals this year were being forced to pay arrangement fees higher than the true cost of the work. And he threatened an investigation by the Financial Services Authority, the city watchdog, if mortgage lenders failed to act voluntarily.

The hard-hitting comments, in an interview with the Daily Post, follow rising anger that banks and building societies are disguising the true cost of a mortgage with soaraway fees. Mr Darling’s comments came as it emerged last night that Wirral Council has reported a 100% increase in the number of people becoming homeless over the past three years, due to mortgage arrears.

And Merseyside estate agents Sutton Kersh says about 20% of its current auction catalogue is repossessed property.

Two years ago, it cost about £400 to set up a two-year fixed-rate deal. Now an arrangement fee of £1,000 is common – with charges of up to £2,500 for borrowers considered less creditworthy.

Banks and building societies can manipulate where they appear in best-buy tables by appearing to have low interest rates. In reality, they are simply switching their charge to the arrangement fee.

Asked about four-figure fees, Mr Darling said: “I’m very concerned that people ought to be treated fairly, especially people coming off fixed rates and going on to different rates.

“We have met with the Council of Mortgage Lenders to try to reach an agreement to ensure that people are treated fairly, but if that isn’t happening, I will ask the FSA to pursue the matter.

“Everybody accepts there are costs that have to be met when they change over, but I think we have to make sure people are treated fairly and are not taken advantage of through no fault of their own.”

Mr Darling declined to say what he considered was a fair arrangement fee, adding: “It’s something I’m discussing with the FSA.”

But the Council of Mortgage Lenders (CML) hit back last night, insisting borrowers enjoyed “a good choice of mortgages, including hundreds of fee-free deals”.

Mr Darling would be making a mistake if he ordered a limit on fees, because it “would be detrimental to customer choice”.

One in 10 homeowners are suffering the shock of more expensive mortgages this year as fixed-rate deals end – just as higher living costs put a squeeze on household budgets.

Most attention has centred on a shortage of deals available – a byproduct of the credit crunch – but the huge fees are adding to the misery.

Cllr Flo Clucas, deputy leader of Liverpool City Council with responsibility for finance and Europe, said: “Anything that overcharges people is a rip-off and anything that gives young people and first-time buyers a higher hill to climb to getting a home is a rip- off.

“The charges of £400-500 to cover administration were manageable to most people but £2,000 is an enormous amount for people to gather together.”

Last night Liverpool estate agents welcomed Mr Darling’s intervention.

Louis Anastasiou, of Andrew Louis estate agents, said: “Reducing arrangement fees would certainly help. It would not be a massive help but it would assist.”

He said cutting arrangement fees would help first-time buyers the most, therefore helping to kick- start the bottom of the market.

James Kersh, partner at Sutton Kersh, said the supply of property was being heavily bolstered by the growing number of repossessions entering the market.

“Approximately 20% of our current catalogue is repossession property.

“Reducing arrangement fees might help some people, but it’s only going to be a small carrot to get the property market moving.”

Last month, county courts reported big leaps in repossession orders made by mortgage lenders, including in Liverpool (31%) and Birkenhead (9%), as well as in Runcorn (41%) and Warrington (37%).

Meanwhile, the numbers hit with a possession claim – the first stage of threatened action – also soared, including in Liverpool (42%), Southport (61%) and St Helens (32%).

But, in a statement, the CML said: “There is still a wide choice between mortgages with lower arrangement fees (and a potentially higher interest rate), and those with higher fees (often with a lower interest rate).