‘Mortgage Product Fees’ – What A Joke

Last week I went for a consultation with my local Building Society’s Mortgage Advisor/Broker (whatever you want to call them) to review one of my Buy-To-Let Mortgages, which is currently with Northern Rock at a rate of 5.7%. It’s been out of the fixed rate period for a few years now, so I’m not tied in like a biiiyotch.

I’m a big fan of remortgaging on a regular basis because it opens up doors to save thousands. With new mortgage products constantly being made available, there’s always opportunities to improve on current products. So the Importance Of Remortgaging is pretty self-explanatry, and that’s exactly why it’s an aspect of one of my key strategies to being a BTL Landlord (that isn’t climbing out of debt like a chump).

I’m not a huge fan of Mortgage Advisor’s that work for Banks/Building Societies because they’re limited to their own products, so more often than not, they don’t have access to the best products on the market. However, curiosity got the better of me when they said they could find me a product better than my current one (I know, standard bullshit-spiel you expect to hear from every greasy salesman).

I’ve looked at remortgaging this particular mortgage a few times in the past, but since 2007 (when the recession hit), the products available for BTL Mortgages have been a pile of steaming shit. The interest rates for BTL mortgages have mostly been ridiculous and when they haven’t been, they’ve either been poisoned by a sky-high product fee or require a ridiculous 40% deposit.

On the back of my past experiences, I went into the meeting with no positive expectations whatsoever. I had no doubt in mind that my broker would be able to offer me a better product (as he said they would), because my current 5.7% rate is lame as hell- not exactly difficult to conquer. But I had a feeling that he wouldn’t be able to offer me anything compelling enough for me to sign on the dotted line and getting tied in for 2 years.

After my Mortgage Broker looked at the facts and figures, and did some number crunching, he enthusiastically offered me the following product:

Mortgage Offered

Initial RateFixed Rate TermMonthly Repayment for first 2 yrsProduct FeeLoan Amount
5.1%2 years£776 (approx)£950£130,000

On the surface, a 0.6% reduction on a rate seems average at best. The rate is also fixed, so for the next 2 years I wouldn’t be affected by any changes to UK interest rates. My broker was really trying to push the product (obviously).

After carefully absorbing the offer on the table, by taking into consideration the heartbreaking product fee (£950) and the current state of the economy, the offer quickly became riddled with flaws. I’m pretty sure my broker knew he wasn’t offering me anything great (unless he was a total dumbass, which is a possibility i’m not ruling out), because let’s face it, it’s his job to know, yet he was still trying to earn his commission by trying to make me apply for it. He kept muttering, “It’s a 0.6% reduction”, and acting completely oblivious to the hefty product fee. I felt like screaming, “Shut the fuck up, and shove your 0.6% reduction up your urethra!!!” He literally said it like 6 times like I hadn’t heard the first time.

My Current Mortgage product

Current RateFixed Rate TermMonthly RepaymentProduct FeeCurrent Balance
5.7%Expired£823 (approx)N/A£130,000

Why is the deal he offered a load of poppycock?

I didn’t have to do any fancy mathematics or deal with any equations beyond my means to workout why the product I was being offered was pointless.

Firstly, I calculated how much I would be paying over the next 2 years for each mortgage.

Current mortgage: £823 x 24 (months) = £19,752
Mortgage on offer: £776 x 24 (months) + (£950 product fee) = £19,574

Assuming interest rates don’t change in the next few years, I’ll be saving a pathetic £178 over the period of 2 years (even if rates climb a little, I still won’t save much at all). What’s the fucking point? The product fee killed the appeal, and chewed up the benefits of the 0.6% rate reduction. I think my broker thought he was David Copperfield of the Mortgage world- poor chap was working awfully hard to distract me with smokescreens and misdirections, so I wouldn’t take into considering the glaring £950 product fee which had kicked me in the nuts. At least, that’s the impression I got. He never included the product fee into any of his calculations, like it was a completely separate entity to the overall deal. Schmuck.

For now, I’d rather stick with my current mortgage and take my chances on interest rates holding for a while. In the mean time, I can easily look for a product that’s actually worth remortgaging for.

When are Interest Rates going to change?

Interest Rates are decided by 9 key players that form the Monetary Policy Committee (MPC). Each person votes on whether they want to increase/decrease the rate. It’s a standard voting system; decision with the overall majority is victorious.

The MPC voted 9-0 in favour of holding rates in August. The vote had been locked at 7-2 for two months and was 6-3 before that. But now, ALL 9 MPC members are wanting to hold rates. At the start of August 2011, futures markets were pencilling in early 2013 for the first increase. However, following the massive stock market turbulence and government debt fears, markets suggest the first rise will be in the summer of 2014.

Of course, this isn’t set in stone. but the fact that ALL MPC members are voting to hold rates is a pretty good indication that nothing will be shifting any time soon, as far as I’m concerned. On that basis, there’s no point in me getting a new mortgage product that will ONLY benefit me if Interest Rates rise soon. Unless the economy dramatically improves overnight, we’re in this shizzle for the long haul.

In conclusion, I’d like to end this blog post with the following final thoughts…

1) Mortgage Product fees are a fucking joke. Don’t neglect them and fixate only on the interest rate (so many people do that!!).

2) The mortgage broker I went to see is a joker. If he tries to offer me shit like that again, I’m going to… well, I don’t know, and he probably won’t be sorry, but I’ll be really frustrated. Yeaaaah!

3) Always shop around for a good deal. Don’t just talk to one institute or advisor.

4) Take into consideration the economic climate when choosing your product.

Incidentally, I looked on my Building Society’s website, and found a picture of my Mortgage Broker…

Mortgage Broker

Does anyone else have any mortgage related experiences to share? You know what to do, grab the mic and say your piece by filling in the comment box below :)

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18 Comments- Join The Conversation...

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Vincent 23rd August, 2011 @ 08:39

Great article. I really don't know why they think everyone is dumb and would actually buy into it. Do they really think that their sales skills are magical?

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Ryan 23rd August, 2011 @ 09:21

Way forward is through an IFA, can pick what they like and as they're a dying breed (far less than either accountants or solicitors) and are being heavily qualified now, they usually know what they're on about.

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Dan Harrison 23rd August, 2011 @ 11:07

Great IFAs are certainly a rareity, but when you find one, they are worth their weight in gold. There's a chap on Twitter that seems to know his stuff, have you prodded him? https://twitter.com/Mortgage_Mind

Dan

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YesAdam 23rd August, 2011 @ 12:45

One for you landlord - mortgage lenders do not have to give you the reason they refused your finance. Even after you have paid their upfront fee's and Val Fee's. This means the lenders can (and have) led people down the path, to at the last minute refuse the finance or any refund.

As for your mortgage offer - TMW is offering 3.19% fixed so your not getting the best deal.

On the other hand your calculation does not include all the fees : Arrangement Fee, Proc Fee, Val Fee, Legal Fees, Admin Fees, Booking Fees and your brokers fee.
Unless theirs equity in the property it does not sound wise to remortgage.

Is your broker a BTL Specialist or just a general broker - Id recommend Bespoke Finance ask for Paul on 01274 925 172 - They just do Buy To Let Finance.

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The Landlord Avatar
The Landlord 23rd August, 2011 @ 13:14

@Dan

Good to see you still knocking about. Yeah, I follow @mortgage_mind- seems to know his stuff. I'll see what he says to say on the issue.

@YesAdam

Lenders refusing to process the loan after the product fee is paid a different issue, but unbelievably ridiculous. It's daylight robbery. It's never happened to me, but I can only imagine how annoying it must be.

I've looked at the deals on TMW. The deals that have low interest rates require large deposits and have crazy high product fees. They seem to mark their product fees on a percentage of your loan (averaging between 3-4%). I'd probably need to do the maths again to see if they actually stack up. But I suspect they'll end up being expensive like my example above. What do you think?

The product I was offered only had a product fee of £950. There were no extra charges. Most brokers get their "broker fee" from the actual lender, and don't charge the borrower. They work on commission from the lender. The property in question has about 35% equity, so it's not too bad.

Hmm the guy I saw wasn't "my broker" per'se. He just works for the building society I bank with. He's not a BTL specialist, just a general Mortgage Advisor, I believe.

But yeah, to get the best deals, I need to talk to a BTL specialist who knows the niche inside and out.

Regards,
Landlord :)

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YesAdam 23rd August, 2011 @ 14:17

The product I found was 75% LTV - Arrangement fee of 3.4% (added to loan) and Proc Fee of 0.4. So would only release 10% ish and yes large fees..

Which is all theory anyway, unless product meets your personal criteria..

This may be a interesting read for you - http://www.lovemoney.com/news/property-and-mortgages/mortgages/11884/its-time-to-ditch-mortgage-fees

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David R 24th August, 2011 @ 10:56

Love my mortgage broker he's saved me a lot of money to date. Always transparent about the commission he gets from each product and doesn't try to steer me down a particular path just presents me with the information.

As for interest rates, recently fixed my personal mortgage in a 10 year deal at 4.99%, hurting a bit now but still confident that I'll be laughing in 5 years time. Bring on the inflation!!!

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YesAdam 24th August, 2011 @ 11:13

Some brokers are motivated by commission (have to feed kids) so its good your broker is transparent. Although on the KFI "Key Facts Illustration" brokers now have to declare their commission and all costs involved.

That's why Landlord was right with "3. Always shop around for a good deal" - so its good your broker is transparent.

David R - You should post your brokers details for others, its not easy finding good quality brokers.

That's the problem with fixed or variable, it is a gamble and could go either way.

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The Landlord Avatar
The Landlord 24th August, 2011 @ 11:28

Hi David,

Fixed for 10 years? Which lender? I think you made a wise decision.

However, I'm not sure deals like that exist for BTL Mortgages! I've never seen a BTL Mortgage which you can fix for longer than 5 years.

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YesAdam 24th August, 2011 @ 11:48

Their is no BTL mortgages over five year fixed on whole of the market.

Aldemore are doing 5.68% to 6.48% Fixed 5 Years from 65% to 75% LTV.
Clydesdale are doing 5.29% Fixed 5 Years for 70% LTV.
Leeds B S doing 5.69% to 6.29% Fixed 5 Years for 60% to 70% LTV
TMW doing 4.99% to 6.29% Fixed 5 years for 50% to 80% LTV.

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The Landlord Avatar
The Landlord 24th August, 2011 @ 11:54

Ahh yeah, that's what I suspected.

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David R 24th August, 2011 @ 11:57

YesAdam - My advisor is a guy called Peter Kelly from www.pjkassociates.co.uk Found him through recommendation from someone with a lot more experience than me in these things.

The Landlord - 10 year fixed mortgage from Yorkshire Building Soc. http://ybs.co.uk/mortgages/current_products/index.html?customerType=&mortgageType=fixed#

The amount they were willing to lend seemed pretty much random depending on who you spoke to but overall it was a positive experience. Applied with them the day after they increased their rates by 0.30%, asked the woman on the phone if they could keep it at the same rate as when I enquired the day before. She spoke to her superior and I was expecting a "computer says no response" but to my pleasant surprise they agreed to reduce it for me.

Have tried looking for 10 year fixed BTL deals but can't find anything. If anyone knows of any would be interested in hearing about it.

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Spike Reddington 30th August, 2011 @ 20:16

Had some quotes recently including a 1 year tracker at 3.39% but costs a whopping £2905

Yikes.

For what exactly?

My experience is the lower the interest rate, the more the arrangement fee. It's a rip-off, but they all do it to a varying degree, so can get away with it.

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The Landlord Avatar
The Landlord 30th August, 2011 @ 20:22

Yeah, lower interest rates generally mean higher arrangement fees! True. true.

I don't even know why tracker mortgages exist at the moment, or why people ate applying for them! The only way the base rate can really go is UP!

Tracker mortgages confuses me right now, so do the people applying for them! Or perhaps I'm missing something?

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Spike Reddington 30th August, 2011 @ 22:01

Tracker = lower rates right now. Yes, they can only go one way, up, but as you said in your post, not for a while yet.

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HAMES 31st August, 2011 @ 07:53

I have recently been looking into the whole fiasco of refinancing. After 3 months and streams of application forms, DNA and blood tests have almost given up trying.

Bank of China where offering a good deal but do not offer BTL for 1 bedroom flats above shops!!

Tried numerous FIA and Brookers and agree they are useless!!

Then under desparation went back to my exsisting mortgage lenders -
RBS wanted me to split the 3 flats into 3 separate deeds!!
Paragon of which i have 2 accounts for over 5yrs said verbally YES only to say NO because i live in Scotland.

Go figure!!

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JAS 14th November, 2011 @ 12:22

Please do not tar all Independent Mortgage Advisers with the same brush.

In any industry there is good and bad and the key is due-dilligence! Interview the Mortgage Adviser first of all, i.e their background in the industry, how well do they know the Buy to Let Mortgage Market, fee charging structure, level of service offered i.e do they advise and recommend a mortgage to suit your own needs or do they provide 'information only.

Also, were you aware that Mortgage Advisers often have access to competitive products only made available to you if you use a Mortgage Adviser.

These 'exclusive' products can sometimes have incentives such as lower arrangment fees, free valuations etc.

Where possible for my clients, I like to look at the total true cost of the mortgage over the term requested i.e 2 3 or 5 year period inclusive of all mortgage payments and all set up fees.

This takes away the issue of balancing interest rates against set up fees and allows you to look to borrow the funds at the lowest cost.

Be careful if you are new to the Buy to Let Mortgage Market if you are trying to source your own mortgage solution. Lenders criteria is very complex and they all have their own specific critiera. It can be costly if you place an application to a lender (as many are now charging non-refundable booking fees) and you have missed a vital are of criteria that you do not fit.

Do not give up on Mortgage Advisers just do your homework first and do ask for a recommendation from your peers.

Yes Mortgage Advisers do charge fees however, the time and effort saved on your part is surely worth paying a fee to avoid!

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JJR 24th November, 2011 @ 13:01

If you want to try and fix your rate for longer than 5 years, you could investigate taking out a 'hedge' - either a fixed rate, or a 'cap and collar' type product.

I took out a fixed rate hedge 2 years ago for ten years at 4.19%. So the way it works is I pay 1% over base rate to the bank for the loan (total 1.5%...you'd never get that deal now though!). Then I pay the 'hedge' 4.19% minus the base rate. If rates were to rise over 4.19%, the 'hedge' would pay me the difference. So effectively I'm always paying 5.19% for ten years whatever happens to interest rates.

The hedge is not tied into your mortgage borrowing, but you would often take it out with the bank that your mortgage is with so that they have the security on the property to know you can pay the hedge. Theoretically you can move your mortgage, sell the properties and buy others and use the hedge, which should make you a more attractive borrower as you have interest rate protection.

BUT, if you reduce your borrowing below the amount you took the hedge on - you still have to pay the hedge (or get paid on it if base rates are higher), or sell part of it (which may cost you money if base rates are lower...)

On the whole I'm happy with my deal, even though at the moment I'm paying way over what I would be without the hedge. When I took it out, everyone thought interest rates would be rising by now. But that's the gamble of it all, and the sums stack up for me which is the most important thing.

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