Banks Hiking Arrangement Fees to Cover Interest Rate Cuts

Tue, 26 Aug 2008

Some of the UK’s largest mortgage lenders have been criticised for using allegedly sly methods to improve their profit margins. New data from Defaqto has outlined the criticisms, claiming that some lenders have tripled their loan fees in the last twelve months. With many lenders trying to appear to be bucking the trend by lowering interest rates on loans, Defaqto claim they are simultaneously increasing fees by an average of £50 to boost their financial performance. Consequently, lenders have made a reported £3 million in the last month alone through hiked fees on fixed rate deals.

The data suggests that Abbey, HSBC and the Royal Bank of Scotland have been the worst offenders, increasing arrangement fees by 92 per cent, 183 per cent and 110 per cent in the past year respectively. The figures reveal that Abbey have the highest fees on fixed rate deals, with an average fee of £1,076.10, though RBS aren’t far behind with an average arrangement fee of £868.23. whilst HSBC’s arrangement fee of £313.78 seems low, it is more than triple the £111 charged at the same point last year.

Such high arrangement fees undermine the interest rates cuts banks are claiming will save borrowers money. Abbey, for example, may have cut the rate on its three year tracker from 5.89 per cent to 5.79 per cent, but it has simultaneously increased its arrangement fee by more than 30 per cent to £1,950.
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