Following the announcement by Northern Rock that it would be reducing its mortgage application fee from £250 to just £99 on 23rd August there has been a great deal of confusion amongst borrowers and brokers. The new fee was welcomed by financial advisors and promoted widely by the bank as a great way for new customers with a small deposit to reduce their initial outlay.
Unfortunately it all went wrong – the new fee was retracted within days and left everyone dissatisfied with the service levels and amount of information being released by the bank. The bank released a statement to say “For all customer applications submitted on Monday, August 23 for purchase and buy-to-let products, the application fee of £99 will be honoured. Northern Rock has now taken steps to ensure these systems have been updated overnight to reflect the delay in the fee charges”
The bank blamed its external suppliers for the system glitch that meant new customers were unable to take advantage of the reduced fees for over a week. Any applications that were submitted from the 24th August will be charged the original £250 fee, this includes both buy to let and residential customers. Northern Rock continued to offer free legal fees and valuations to its residential customers on products that were sold at up to 60% Loan to value (LTV).
However, this week the bank have announced that the technical issues have been resolved and the £99 fee is now firmly in place. A spokesperson said “This reduction to our mortgage application fee is great news for customers who are looking to keep their purchase costs low……….. There are lots of elements involved in buying a new home and this is one way Northern Rock is helping to keep things as straightforward and affordable as possible for our customers”
Low application fees have been a competitive area during the summer months as banks and building societies try to attract new customers. New buyers in particular find it hard to compare different products and are often attracted by promotions from the big banks and building societies.
As most first time buyers will know, the need to find upfront product fees and legal costs can seriously delay their ability to afford a mortgage as all savings and spare income are put towards the deposit. The Financial Services Authority describes the fees as a commitment from the lender to hold the funds and make sure they are available subject to eventual approval of the loan. These fees are also called product fees or arrangement fees and do vary widely, the amount that you pay can be linked to the total amount of the loan, the LTV and type of mortgage but often seem to be an arbitrary charge across a whole range of products including high LTV and buy to let loans.
A quick look at current fees reveals the following figures
Nationwide two year fixed rate £99 Booking Fee
NatWest two year fixed rate No Product Fee
Principality Building Society Buy to Let £999 Arrangement Fee
Coventry Building Society Buy to Let £250 Booking Fee, £1499 Arrangement Fee
Some lenders use a percentage figure to calculate the fee they will charge – on a buy to let mortgage this can be up to 2.5% of the loan amount.
However the arrangement fee is only part of the story, if the low fees are associated with a high interest rate then overall costs for the term of the mortgage or special deal can work out much higher.
Northern Rock, along with most other lenders are trying to make their products attractive but this latest piece of publicity will once again affect their reputation amongst both the general public and financial advisors.