One of the features of the credit crunch is how difficult it has been for people to find a decent mortgage without paying huge arrangement fees.
HSBC seemed to come to the rescue of the battered mortgage borrower at the start of the year with their promise to "Rate Match" an existing fixed rate mortgage.
"Too good to be true" we thought, and it was!
The mortgage was only available to those whose fixed rate was due to end within a very short timescale. The HSBC mortgage required a 20% deposit and was only available up to £250,000 borrowing. At the launch of this product, it was pretty difficult to work out how much the arrangement fee was actually going to be. It was based upon the amount borrowed and the interest rate being 'matched'. Since the interest rate and the fee charged have a very important relationship to overall cost, it was difficult to see the value this approach delivered to a customer.
The bank received massive media coverage for the product which resulted in somewhat of a stampede. We know of one client who waited 3 weeks to see the HSBC to be told he was not eligible, during which time the mortgage market had moved against him and rates and increased.
The money education site www.fool.co.ukrecently published some interesting figures on this mortgage with rgeards to the fees charged. Currently, if HSBC were to lend you £250,000 at 4.79%, the fee payable would be £7,699. Nearly EIGHT THOUSAND POUNDS, can that be considered good value? At a time of decreasing and static property prices, is it really right for a home owner to 'give away' their precious equity to a bank through these rip off fees?
Many will not realise that this mortgage is simply uncompetitive. When shopping around for a new mortgage, it is vital the consumer takes into account the arrangement fee charged by the lender. Also, given current market conditions, is a fixed rate really the best option?
We strongly urge all customers not to take a mortgage lenders offering at face value. It is vital that the customer takes a moment to consider their options with a "whole of market" mortgage consultant. Failing to obtain professional advice in the current market could leave the borrower open to the risk of losing equity in their homes through these rip off fees.
UPDATE 21st January 2009
With house prices having fallen by an average of 16% last year, how many customers who paid such high fees to arrange a mortgage will be looking back with regret? Finding the right mortgage is very different to finding the cheapest rate!
