Playing the name game
Fashions go in circles. Well that’s what my dear late Gran told me and she should know as she was a seamstress in the West End for many years. To coin another phrase, ‘What’s in a name?’ Together they provide an explanation to what is happening with fee charging by lenders in the mortgage market.
Many of you may remember the ill-fated CAT-standard mortgages. One of their most vocal supporters, Nationwide, embraced the philosophy quicker than Harry Potter might have done in his first year at Hogwarts. It set about stripping out all of its charges and then sat back and waited for its compatriots to follow, and waited and waited. Subconsciously, it probably prompted its later ‘Proud to be different campaign’. In all seriousness, it has been edging up its charges this year in a quest to remain competitive on rate. And therein lies the problem.
Without wishing to state the obvious, rates sell mortgages. Being top of the sourcing systems and websites is increasingly important and fees help achieve that. Regrettably, the ‘true-cost’ method of sourcing seems to have become less important which is strange given we are now operating in a regulated environment.
This year has undeniably seen the launch of ‘monster completion fees’ across all sectors. Why has this fad happened? Well, we have lost higher lending charge (HLC) income, a revenue stream clasped tight until it became fashionable to remove it. Once some lenders dispensed with theirs, it was only a matter of time before the rest followed. This left a substantial void in revenue and with interest rates so low and early repayment charges (ERCs) so light, mortgages began to lose their economic appeal for the lenders and something had to give.
So what’s in a name? It is very rare clients can afford to do anything but add fees to their loan while buying a house. So you can call a fee what you like but generally it will just be adding to the indebtedness of the customer. And, if you are being charged for something, you are entitled to know exactly what it is. On this point I see a poorly disguised veil, dressing up the situation and masquerading under mortgage jargon.
For example, some would argue HLCs provide protection to the lender should house prices fall; however do lenders actually buy polices or simply take the hit on the chin should a claim come about? Given the latest figures from Nationwide, house prices are now stable, after a year when some suggested a major crash, and so many lenders have concluded the latter option is the most sensible course of action.
How about the amount levied by the lender to cover its processing costs? Well unlike HLCs and ERCs, the FSA must have forgotten to prescribe a common term.
So for the avoidance of doubt I refer to arrangement fee, administration fee, completion fee and the bizarrely-known Abbey booking fee chargeable on completion. Well if this charge is truly for what it says it is, why can lenders charge a 1.5 per cent completion fee on one product and £399 on another? Furthermore, there is discrepancy in the telegraphic transfer fees from £25 to £50.
In short, fees have returned to the big time and personally that’s fine by me. However, I believe the FSA should come up with one ‘collective’ name which describes all charges that are added to the loan. It will lead us towards easier comparison and away from the current plethora of terms.
The two-year fixed rates without overhang include Northern Rock at 3.99 per cent with a high completion fee and Yorkshire’s 4.38 per cent with standard fees. Accord Mortgages’ risk appetite seems to increase week-on-week. It has increased its loan sizes across the LTV bands including the aggressive £300k for 100 per cent deals.
Nationwide has increased its maximum mortgage term to 40 years. This may dovetail nicely following the review of the national retirement age. It will be interesting to see from an underwriting perspective how lenders will view manual workers in their twilight years.
Halifax has made the decision to only guarantee rates once a full application has been completed and not at AIP stage. This is interesting when it is repricing upwards. Lambeth has changed the pricing on its two-year shared-ownership fix to 5.64 per cent. Finally, with the talk of rate rises in Europe, our overseas product providers have begun to make upward adjustments to their rates.
Quite a few lenders I have spoken to have given details of their plans for 2006 with most suggesting the development of affordability calculators to take out their employed self-cert offering. I heard a mainstream lender on the radio stating: ‘we won’t load the rate like some [self-cert] lenders and will still be able to offer a loan through affordability.’ I wonder what its sister firm makes of this as it does just that?
Congratulations to UCB on its bold move retaining its unique way of calculating affordability based on earned income while entering the industry-standard rental coverage method. The factor is 125 per cent of the interest at Bank Base Rate plus 1 per cent. This will please its stalwarts and attract new customers. Its processing teams probably did not greet the news with such enthusiasm as running alternatives can present a challenge. The criteria enhancement also means it can offer buy-to-lets to retired applicants.
Platform has launched its answer to the The Mortgage Business (TMB) House2 House product, entitled House Plus. 7 per cent of the existing mortgage balance is deduced from the self-cert income before income multiples are applied. The loan sizes are more generous than TMB at 85 per cent LTV to £300k and 75 per cent to £1 million. To aid the launch we are offering free valuation to our brokers.
Woolwich has completed a training programme with a pilot packager group and is close to launch. It aims to achieve £150 million a year through this new select distribution channel.
LIBOR resets have been virtually consistent across lenders at 4.61 or 4.62 per cent. Kensington Mortgages now offers free valuation across its range and has amalgamated the two-year fixed rate without extended ERC into its core offering.
Platform has launched a new range of ‘special fixed rates’ which offer some of the keenest prices in the market but do include HLCs and 1.5 per cent completion fees. SPML now offers a two-year discount at 0.85 per cent. In most cases its two-year fixed rate is still lower on price but it does have a higher completion fee.
Richard Stokes is head of product development at The Mortgage Times Group