One year on from Mortgage Day, Nationwide Building Society questions whether consumers are really any better off under the new regulations.
On 31 October 2004, all 150 plus lenders and over 70,000 advisers became statutory regulated for the first time by City watchdog, the Financial Services Authority.
Mortgage Day also meant the end of headline-grabbing advertisements with low interest rates which hid the true costs of the product in print so small that a magnifying glass was needed to read them.
However, even with greater transparency resulting from the introduction of Key Facts Illustrations (KFIs) – which highlight all product details including terms & conditions and arrangement fees – lenders are still taking advantage of consumers. People end up paying much more than they should for their mortgage deals and Nationwide wants borrowers to know how they can keep their costs to a minimum.
Regulation has already made it more time-consuming, and therefore more difficult, for consumers to shop around so here are a few tips on what people should think about when looking for a new mortgage:
Nationwide’s tips
- Don’t pay a higher lending charge
- Don’t pay annual interest
- Avoid extended redemption penalties
- Avoid mortgages that have insurance products tied in
- Don’t use a lender that keeps its best deals for “brand new customers only”
Nationwide abolished its higher lending charge or mortgage insurance guarantee (MIG) in September 2000 and still campaigns for other lenders to follow its lead, believing this charge penalises borrowers who can least afford it.
Typically MIGs affect customers borrowing more than 90% of the value of their property and it costs around £1,500.
Nationwide estimates that this fee was paid by around 50,000 first time buyers in 2004. Stuart Bernau, executive director, advises: “If your lender wants to charge this fee, which protects the lender, not the borrower, look for a deal with another lender.”
Nationwide also led the switch from charging annual interest to charging daily interest, on mortgages, in May 2001. Most lenders that charge annual interest also have mortgage products with daily interest at a higher rate, for example, Bristol & West. Again, Stuart Bernau advises: “Consumers would be better off choosing a lender with daily interest and a low interest rate. If borrowers are being charged annual interest instead of daily interest, they may not be getting the full benefit of their repayments and so should consider switching to another lender.”
None of Nationwide’s mortgage products have extended redemption penalties. Many other mortgage products do.
Stuart Bernau warns: “Don’t be fooled by an initial low interest rate that has extended redemption penalties. Rarely, if ever, does the benefit received from the low initial rate outweigh the burden of the higher rate at the end of the period, so be careful!”
Nationwide does not tie borrowers to its insurance products. Of course it insists that homes are protected with building insurance, but it does not specify insurers, does not charge fees for checking cover, or charge fees for switching. Stuart Bernau advises: “In addition to checking the fees detailed in the KFI, borrowers should also ask for full details of the range of fees charged by the lender. A recent tally across high street lenders identified a range of fees that lenders charge for mortgage application and servicing.” Northern Rock and Bristol & West charge a fee for taking alternative insurance. Other charges applied by some lenders include fees for altering the mortgage term, obtaining a duplicate mortgage statement or for deeds storage.
Finally, all Nationwide’s mortgages – including deals – have been available to all of its borrowers since 2001 and, again, it campaigns for other lenders to treat both new and existing customers fairly. Nationwide’s fully flexible Base Mortgage Rate (BMR) is around 0.60% lower than most of its high street competitors and is guaranteed to be no more than 2% above the Bank of England base rate. Stuart Bernau warns: “Borrowers coming to the end of a deal shouldn’t assume their lender's Standard Variable Rate (SVR) is the only option available to them. Whether borrowers prefer the flexibility of a SVR or want the security of another deal, they should shop around for the best deal available.”
