Speaking on the BBC Radio 4 show, Moneybox, presenter Paul Lewis questioned Council of Mortgage Lenders’ director-general, Michael Coogan, on why lenders charge arrangement and exit fees.
Dicussing the debate over 25-year fixed rates, Coogan said they would encourage economic stability, to which Lewis countered that a better way of encouraging consumers would be to have no or low arrangement fees on long-term loans.
Lewis said: “Why can’t these long-term rates be offered with zero arrangement fees? That surely would encourage people because they would then know exactly what it will cost them over the next 10 or 25 years?”
Coogan claimed that the decision of the consumer laid between whether they wanted a low interest rate which may have a higher fee, or a higher interest rate with a lower fee
He said: “You can have long-term products which have lower cost entry, but they’ll typically have higher exit costs. The question is what is attractive to the customer, and I think by and large in the past they’ve been interested in low monthly costs.”
Lewis claimed that confused consumers just looked at the headline rate. “If your industry made the whole thing much simpler, got rid of these costs upfront, and just had an interest rate, that would enable people to make rational decisions.”
Paul White, consultant at Belgravia, commented: “To explain the fees is part of our role. Lewis should be pressing the lenders over their fees as they do what they can get away with.”
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