This week we have talked about what mortgage arrangement fees are, how they work and the FSA’s role in the situation.  Now, we ask what borrowers can do to stop mortgage lenders from exploiting the public with high mortgage ‘arrangement’ fees.

The Council of Mortgage Lenders (CML) has pointed out that nobody is forcing anyone to pay an arrangement fee.  There are fee-free deals out there.

What borrowers need to understand is that mortgage lenders charge a higher arrangement fee to make up for a slightly lower interest rate.  Usually, the arrangement fee more than makes up for the interest rate.  Then, if the mortgage lenders allows the borrower to add the arrangement fee to the mortgage, they get to charge interest on that too!

So, to stop high arrangement fees, borrowers should look carefully and take their business elsewhere. The interest rate may look slightly higher, but that is because the arrangement fee has been spread out.

For example, the Nationwide offers a two year fixed mortgage deal at 7.35% on mortgages up to 90 per cent loan-to-value (LTV), or 6.95% on a 75 per cent LTV. Both deals have no fee attached to them, or no “reservation fee”, as they call it. As an alternative, you could pay a £599 mortgage fee, and get 0.4% off the interest rates.

For those looking for a remortgage, Nationwide offers a two year fixed deal costing 7.15% up to 75 per cent LTV and 7.55% up to 90 per cent. Similarly, a £599 fee knocks 0.4% off the interest rates.

The one drawback with these deals is that you need a minimum of a 10% deposit, and preferably a 25% deposit.

Working out whether you are better off with a lower interest rate and a high fee or a no fee and a higher interest rate can seem complicated but if you aren’t sure, then you can seek the help of a CeMAP qualified mortgage advisor who will be able to help.

Many people attend CeMAP training to help them understand the complications of the mortgage market and many landlords attend our CeMAP courses for this reason, not just to become a mortgage advisor.