Focusing on Nationwide Building Society, Nick Gardner, director at Chase de Vere Mortgage Management, said the lender should reduce the rates offered on its fee-free deals as consumers opting for the ‘fee-free’ option would end up paying more than if they added the fees to the mortgage loan.
Gardner said Nationwide offers a two-year fixed rate product, with the option to have no arrangement fee at a rate of 5.77 per cent, or 5.30 per cent, with a £399 fee. Based on a £100k mortgage, he said, the repayments at 5.77 per cent were £630.32, whereas if the £399 arrangement fee was added to the loan, the mortgage would be £100,399, with repayments at £608.77 – a saving of £517.20 over the deal period.
Gardner said: “The ‘fee-free’ option is over £500 more expensive than taking the fee-carrying deal and adding it to the mortgage. Any defence Nationwide BS might argue that it offers this for people who want to keep up-front costs to a minimum is, therefore, redundant. The only circumstances the fee-free option will work better under is for tiny mortgages, yet Nationwide BS promotes the fee-free option to all borrowers, regardless of mortgage size.”
Charlotte Sjoberg, spokesperson at Nationwide BS, admitted fee-free deals were not that popular with its borrowers, but that the lender wanted to offer choice to its customers. She explained: “The reason we offer fee-free mortgage deals is to provide consumers with more choice. We openly admit that fee-free deals are more expensive than fee-carrying deals and that the interest rate is higher because we are offering the fee-free option. Customers are told this in our branches, and I would hope mortgage intermediaries point it out too.”
