The great mortgage rip-offPosted on: 11 October 2010 by Editor at Large
We're being swindled by mortgage providers and most of us don’t even know it, says IFA Peter McGahan.
I asked my mortgage department to provide me with some information in relation to the best and indeed the worst mortgage rates. I admit to hoping that institutions bailed out by the taxpayer would be the worst, but I never dreamed how bad they actually would be. Strap yourselves in.
An independent mortgage broker analyses the best terms on the market and studies all the hidden fees to show the true cost to the borrower.
There are often hidden fees and fees that are obscured. The borrower often has no idea what they are really paying. High Street lenders are also dining out on the fact that most borrowers are just happy to actually get a mortgage and many are paying much more than they should be.
As examples I've 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 per cent. If the average mortgage is £142,857, the total monthly cost would be £684.15. It offers a free valuation and no arrangement fees plus £250 cash-back upon completion.
Over the two years the net cost to the borrower is £16,169.60. The average cost across the ‘taxpayer saved’ lenders of Northern Rock, C&G, Halifax and NatWest was £16,955.55. So over just two years you would be assisting in the re-capitalising of the banks by £785 or £32 per month.
The worst offering in the sector came from Halifax. Their two-year tracker offered an outrageous arrangement fee of £1499. Furthermore the total cost of the mortgage over the two year period was £1645 more than Abbey, or £68.50 more per month.The total cost of a five-year fixed-rate mortgage was just amazing.
The best five-year fixed-rate was offered by Coventry at 4.35 per cent. The total cost came to £47,914.80 over the five-year period. The average cost across the ‘taxpayer saved’ banks was a staggering £53,755; more than £5841 or £97.36 more per month.
The worst offering was from BM solutions, also ‘taxpayer saved’, with a total cost over the five years of £64,209. That's a brutal £16,296 more expensive than the best offering by Coventry.
This is over £271 per month more than the best rate in the market. Clearly borrowers cannot 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 £65,040.00 more than the best terms offered by Coventry. This is nearly half the amount originally borrowed.
Many of the banks then make a secondary killing from their customers by selling ancillary products such as insurance. Whether it's 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.
Space prohibits a detailed analysis, but at first glance the insurance rates offered by some mortgage lenders are close to 10 per cent more expensive than other insurers for inferior cover.
For example, one bank offered critical illness at 30 per cent more than the most competitive firm.
Furthermore the terms of cover were rather different. Some firms pay out on ‘total and permanent disability', defined as being unable to do ‘your own job’. The bank's policy would only pay out if you were unable to do ‘any’ job.
So, if you were a fisherman who lost both legs but you could type, they wouldn’t pay out, because you 'could' get a job as a secretary.
Need Expert Advice?
Peter McGahan is an Independent Financial Adviser and Managing Director of Worldwide Financial Planning. Worldwide has won 16 Financial Times awards in the last four years. Peter has also been named the top media IFA of the year by Unbiased.co.uk in 2009.
Peter comments regularly in major journals such as the Mail on Sunday, Irish News and Sunday Times and is a weekly columnist for FT Adviser. He has also appeared on Working Lunch and the Today programme. In addition he is an expert on international tax matters for a range of international publications.
Worldwide Financial Planning Ltd 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.'
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made. The above represents the personal opinions of Peter McGahan. All information is based on understanding of current tax practices, which are subject to change. The value of shares and investments can go down as well as up.
If you have a financial query you would like Worldwide Financial Planning to respond to, call 0845 230 9876 or email firstname.lastname@example.org.
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