With house prices continuing to head upwards, brokers have noticed the tendency of lenders to cap best rate products with a maximum loan amount, meaning the client has to accept multiple mortgages on the property.
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Jonathan Cornell, technical director at Hamptons International Mortgages, commented: “The problem has come to the fore in recent months as a number of lenders have capped their fixed rates due to swap rates heading up, meaning you have to top up the mortgage if you want to get the best rate. This is frustrating for clients that have to do this.”
However, for Linda Will, managing director of Accord Mortgages, much of the capping has to do with lenders being unable to make a profit on larger loans.
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Will believed this had contributed to the increased use of products with percentage arrangement fees, meaning clients who wanted a larger loan would have to accept either more than one product or a percentage arrangement fee.
“Capping products has always happened but not as low as is happening now because of profitability for lenders. As the fees are fixed, the larger the loan becomes, the less profitable it is for the lender – unless the arrangement fee is a percentage as this scales the gap. This is one of the reasons why the number of products with percentage fees has grown and I think this will continue. Therefore for larger loans, if you have a percentage fee, the cap will come off. Otherwise you will be forced to split the mortgage or have part of it on a standard variable rate.”
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Paul Fincham, senior media relations officer at Halifax, said: “For higher-value borrowers, it will always be a trade-off between the pricing of the fee, whether an absolute amount or a percentage, and the rate. For the last few years, lenders have been trialling high fee/low rate products for larger loans but it’s all about bringing products to the market which customers, brokers and lenders all like the look of.”
