When Mr L decided to switch his mortgage lender - he was unhappy with the higher mortgage rate he had been paying - he thought it would only cost about £300-£400 in various charges. To his displeasure, his solicitor informed him that the total cost of shifting the capital balance would be £1,300, which he says, "was more than I paid in charges when I first bought the house four years ago". Mr L now says he feels he is "trapped" with his existing lender.
We asked Richard Eberle of the independent fee-based mortgage brokers, REA Mortgage Services about the cost of switching a loan. According to Mr Eberle, there are some charges everyone has to pay.
"That £1,300 does sound a bit high, but it depends on what is included. Everyone has a legal outlay which must be paid. This is the land registry fee which works out at about £265, a stamp duty on the assignment of the life policy which is another £50, between £50£100 for the legal search and another £1 per £1,000 value Stamp Duty. On a typical £80,000 mortgage, this would work out at £80 for a total of about £450-£500. "On top of this you have to pay the professional legal fee. Some solicitors may try to charge 1 per cent of the value of the loan, but if you pay this, you are paying too much." He suggests that £500 would be a "fair" fee, bringing the total cost of the switch to £1,000. This also assumes that you are not breaking a fixed-rate mortgage to which an interest penalty may apply.
REA Mortgage Services has paid commission refunds to their clients of more than £50,000 in the first six months of this year, says Mr Eberle, "simply because unlike most estate agents, solicitors and mortgage brokers we do not get paid on a percentage basis".
The property boom and high prices has meant that there has been a huge windfall to people who take a percentage slice, either in fees or on commission.
Anyone, regardless of the size of the loan who wants to switch lenders is charged a flat fee of £950 from REA, which includes all legal fees. On top of that is the £450£500 legal outlay (for registry fee, searches, stamp duties, etc) bringing the total cost to as much as £1,450.
"However, in our case we would refund any commission that might be automatically paid by the lender, usually a 1 per cent payment. On a typical £80,000 mortgage this is the equivalent of an £800 refund bringing the bill down to £650."
Switching a low-value mortgage with these kind of compulsory costs does not make a lot of sense, even with a refund. Mr L did not reveal the cost of his mortgage but if it is less than £50,000 he should consider going back to his existing lender and negotiating for a better interest rate, says Mr Eberle.
