The great mortgage rip off, and I’ll bet most of us don’t even know it.
I asked my mortgage department to provide me with some information in relation to the best mortgage rates and indeed the worst. I admit to hoping that ‘taxpayer saved’ institutions would be the worst but I hadn’t realised how bad they actually would be. Strap yourself in.
The whole point of using an independent mortgage broker is for that broker to analyse the best terms in the market and study all hidden fees to show the true cost of the mortgage to the borrower.
There are often hidden fees and fees that are obscured, so much so, the borrower has a much more difficult chance of knowing what they are really paying. Lenders on the high street are also dining out on the fact that borrowers are just happy to actually get a mortgage and many are paying way more than they should.
For this example I have chosen a two year tracker mortgage, and a five year fixed rate mortgage.
The best two year tracker is provided by Abbey with a rate of 3.09%. If the average mortgage is Â£142,857 (1), the total monthly cost would be Â£684.15 (2). The product offers a free valuation and no arrangement fess and Â£250 cash back on completion.
Over the two years the net cost to the borrower is Â£16,169.60. The average cost across the ‘taxpayer saved’ lenders of Northern Rock, C&G, Halifax and Natwest was Â£16,955.55. So over just two years you would be assisting in the re-capitalising of the banks by Â£785 or Â£32 per month. The worst offering in the sector came from the firm offering easily the worst adverts in history – Halifax. Their two-year tracker offered an ice cool outrageous arrangement fee of Â£1499. Furthermore the total cost of the mortgage over the two year period was Â£1645 more than Abbey – or Â£68.50 per month.
The total cost over a five year fixed rate mortgage was just amazing.
The best five year fixed rate was offered by Coventry at 4.35% and the total cost equaled Â£47,914.80 over the period. The average cost across the ‘taxpayer saved’ banks was a staggering Â£53,755; more than Â£5841 or Â£97.36 per month.
The worst offering was from BM solutions – also ‘taxpayer saved’ – with a total cost over the five years of Â£64,209; a brutal Â£16,296 more expensive than the best offering by Coventry.
This is over Â£271 per month more than the best rate in the market and clearly borrowersÂ must not be seeking advice if they are borrowing at that price. Over the term of the remaining 20 years if the borrower continued with that margin they would have repaid Â£65,040 more than the best terms offered by Coventry. This is nearly half the original borrowing.
Many of the banks then make a secondary ‘turn’ off their customers by selling ancillary products.
As most are not independent they are tied to just one organisation. Space prohibits a detailed analysis so – another time – but at first check the rates are close to 10% more expensive for inferior cover.
Whether its home insurance, life insurance or critical illness, borrowers need to be very clear on what price they are paying and the cover they are receiving.
For example one bank we saw offered critical illness at 30% more than the most competitive firm.
Furthermore the terms of cover were rather different. For example; one firm would pay out on ‘total and permanent disability’ which is defined as being unable to do ‘your own job’ whereasÂ the bank would only pay out if you were unable to do ‘any’ job.
So as long as the fisherman could type or be a receptionist, they wouldn’t pay out.
If you would like a free review of your mortgage or life insurance call Peter on 0845 230 9876, e-mail firstname.lastname@example.org
Your home may be repossessed if you do not keep up repayments on your mortgage
Peter McGahan is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'