Lenders turn on Darling over mortgage arrangement fees

Mortgage lenders have turned against Alistair Darling and his calls to cap mortgage arrangement fees.

The Council of Mortgage Lenders (CML) has spoken out against government suggestions of a cap on the cost of fees mortgage lenders are allowed to charge for their products.

Chancellor Alistair Darling yesterday demanded a halt to "rip-off" fees, which have risen by as much as 600 per cent over the course of the last two years.

In an interview with the Liverpool Daily Post, Mr Darling said: "I’m very concerned people ought to be treated fairly, especially people coming off fixed-rates and going on to different rates.

"We have met with the Council of Mortgage Lenders (CML) to try to reach an agreement to ensure that people are treated fairly, but if that isn’t happening, I will ask the Financial Services Authority (FSA) to pursue the matter."

Mr Darling he was concerned borrowers were being "taken advantage of", following the rise in fees.

Two years ago, it cost £400 to set up a two-year fixed-rate deal. Now an arrangement fee of £1,000 is common – with charges of up to £2,500 for borrowers considered less creditworthy.

However, the CML has hit back against the comments, claiming the organisation had not discussed arrangement fees with the chancellor, although it did conceded to having discussed the position of people coming off short term deals onto higher payments.

"No-one has to pay an arrangement fee, as fee-free deals still exist," argues the CML.

"Unless these people wish to remortgage, they will not pay a fee, although they may face higher monthly payments as a result of prevailing higher interest rates.

"Lenders have committed to ensuring that borrowers get adequate notice of their new payments to help them plan ahead for rising costs, and to encourage them to contact their lender if they are worried they will not be able to meet their new level of payments," added the CML in a statement.

As the supply of wholesale finance for mortgage lending has reduced during the liquidity crisis, lenders have been forced to raise interest rates and fees in order to maintain profit levels and secure only the most attractive buyers.

"Everybody accepts there are costs that have to be met when they change over, but I think we have to make sure people are treated fairly and are not taken advantage of through no fault of their own," added Mr Darling.

In response to the potential of a government cap on fees, should the market fail to self-regulate, the CML argues this would prove detrimental for the market.

"Arrangement fees vary between different lenders and different mortgages. There is still a wide choice between mortgages with lower arrangement fees (and a potentially higher interest rate), and those with higher fees (often with a lower interest rate)," said the CML.

"Constraining the market to offer products priced in only one way would be detrimental to customer choice," concluded the statement.

Chris O'Toole