Broker remortgage mortgage

The remortgage rip-off

NEARLY half of all homebuyers are paying the banks' standard variable rate on their home loan almost without exception the most expensive rate going. And some 70 per cent of homebuyers have never bothered to remortgage in spite of the fact that they could almost certainly save about two per cent in interest charges. On a Pounds 100,000 home loan this is a saving of Pounds 2,000 a year, or Pounds 167 a month. On the other hand, with lenders loading on all manner of extra fees for remortgaging, is it worth the time and effort?

Remortgaging now accounts for half of all lending.

But increasing interest-rate competition is encouraging lenders to push up charges instead, making it less attractive to remortgage with smaller loans.

The costs of remortgaging, which can easily total Pounds 1,000, can often cancel out the gains made by moving to a cheaper rate of interest.

"Fees have been creeping up over the past couple of years, and very often the borrower doesn't notice," says mortgage broker Ray Boulger, of Charcol.

"For example, exit fees, such as deed release fees, have gone up and now average about Pounds 150, with some lenders charging Pounds 200."

Boulger points out that few borrowers look at exit fees when signing up for a loan, so it comes as a bit of a shock when they find there is no way of avoiding them. "There are only two lenders, Nationwide and HSBC, who make no charge for redeeming a mortgage," he explains. "The market for remortgaging is very competitive and lenders who have to offer big discounts to attract new business are trying to claw back some profits from fees."

Another trick by lenders is to charge interest until the end of the month if you switch lenders, even if you repaid the loan at the beginning of the month. With a big loan, this could easily mean a hidden "exit fee" of Pounds 450 on a Pounds 100,000 loan. There is no justification for doing this -- other than to make money out of the departing borrower.

So what might you have to pay to remortgage? In the worst case, you could find yourself paying a booking fee of about Pounds 120, an arrangement fee of Pounds 350, legal costs of Pounds 500, a valuation fee of at least Pounds 250, a redemption, or deed-release, fee of Pounds 200, and cent of the property's valuation, many lenders - at least 13 of the largest 20 - will charge for a Mortgage Indemnity Guarantee, which can easily work out at another Pounds 1,600 on a Pounds 100,000, 95 per cent mortgage.

This means that what lenders appear to be offering with one hand is smartly grabbed back with the other. The experience of reader Antonia Walker is fairly typical. She is switching from a Co- operative Bank mortgage to a loan with the Newcastle Building Society, organised by broker Savills Private Finance.

She has so far been asked to pay a Pounds 445 "completion" fee, a local search indemnity fee of Pounds 60, a "fine" of Pounds 25 because she is not using the Newcastle for her household insurance, Pounds 30 for the telegraphic transfer of the money to her old lender, and a further Pounds 30 for the release of the title deeds by the Coop - nearly Pounds 600 in total. This is actually quite cheap compared with what she could be asked to pay, but it still came as a nasty shock when she found out about the "completion" fee of Pounds 445.

"Nobody mentioned this when I first asked for the remortgage," she says.

But for a real scam, it is hard to beat the Woolwich.

With a Woolwich Open Plan loan you can get a good deal on the mortgage -- a discount of two per cent for two years. But beware. If you use the current account reserve loan that runs alongside it, say, to pay for a new kitchen, you will be charged the standard variable rate of 6.49 per cent (not the discounted rate). Much worse, if you ask to consolidate the reserve borrowing with the original mortgage (in order to pay the discounted rate on it all), this will be classed as a new mortgage - with costs of Pounds 689, including a Pounds 195 exit fee from your existing mortgage: this is just a rip-off.

"We always do a cost analysis for our clients and work out whether the remortgage makes sense when you take into account the charges set against the potential saving," says Simon Jones, of mortgage broker Savills Private Finance.

You will almost certainly be better off using a broker, even if you have to pay a fee, because first, the broker knows the market, and second, some of the best deals are only available through a broker.

Remortgaging takes about four to six weeks, so if you are on a special deal that reverts to the standard variable rate, start shopping around a couple of months before the concessionary rate comes to an end. ASK your existing lender for a "termination statement", to include all the exit charges, so that you know what to expect. This is quite a good idea anyway because it puts the lender on notice that you are thinking of moving. You can then call the lender and suggest that they match the deal you are thinking of taking and very often they will do this for a simple administration fee of about Pounds 150.

If your mortgage is less than Pounds 100,000, ask the broker about fee-free remortgage deals. Although the interest rate charged may not be the best deal in the market, the fact that there are little or no fees can be a big consideration on a relatively small remortgage. Most lenders won't consider a remortgage if there is fewer than five years left to run on your existing home loan.

YOU could pay a booking fee of Pounds 120, an arrangement fee of Pounds 350, legal costs of Pounds 500, a valuation fee of at least Pounds 250, an "exit fee" of Pounds 200, and even a broker's fee of Pounds 500 - which would make remortaging a not very attractive option

REMORTGAGING takes about four to six weeks, so if you are on a special deal that reverts to the standard variable rate, start shopping around a couple of months before the concessionary rate comes to an end.

ANOTHER trick by lenders is to charge interest until the end of the month, even if you repaid the loan at the beginning of the month. This could easily mean a hidden "exit fee" of Pounds 450. There is no justification for this other than to make money out of a departing borrower.

Tell us your story

We want to hear your personal stories about home-related money matters.

Please write a brief outline of your story, adding a daytime telephone number, and send to Money, Homes Property Editorial, Evening Standard, 2 Derry

Street, London W8 5EE. Please do not enclose documents. If we can follow up your story, we will contact you. If you would like to be considered for a cash clinic, please send a brief outline of your current situation.