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Mortgage applicants who are tempted by falling interest rates to switch deals after getting a loan agreed could face hefty penalties, a leading mortgage broker has warned.
David Hollingworth of London & Country Mortgages said while some lenders levied no fees if you changed your mind after starting the application process for a loan, others could charge in excess of £1,000.
"Most lenders will retain any application fee that has been paid – C&G for example will keep its application fee of £99 if you change your mind," he said.
"Others, such as First Direct, require the borrower to pay half the arrangement fee upfront, and will keep this if you then decide to switch to another loan. But a few require borrowers to forfeit the whole arrangement fee."
With house prices falling homeowners have been encouraged to organise remortgages up to six months before their existing deals come to an end rather than risk the equity they hold in their property shrinking so much that they no longer qualify for the best deals on the market.
But the steep fall in interest rates over the past six months means anyone who applies for a new mortgage too early could find that cheaper loans are available by the time they actually remortgage.
Londoner John Smith faces having to stump up £590 after changing his mind about which mortgage he wanted. He was halfway through arranging a mortgage with NatWest when his existing lender, Alliance & Leicester, made him a better offer.
He said: "NatWest have said it's fine for me to switch but that they will charge me the arrangement fee anyway.
"The Alliance & Leicester mortgage – a tracker set at 0.9% over base for the life of the mortgage – is so good that it will have paid for the arrangement fee in six weeks, and I would have had to pay a termination fee to leave Alliance & Leicester anyway. But it's still very irritating to have to pay £590 for RBS to fill in a few forms."
Hollingworth said NatWest and its parent bank RBS were unusual in not requiring applicants to pay any money upfront, but demanding they pay up the entire arrangement fee even if they decide not to proceed with the mortgage.
Barclays/Woolwich has just introduced a fee of £150 for withdrawal from an application. A spokeswoman said: "Our application fee is £995, and some borrowers were paying this upfront while others opted to add it to the mortgage.
"If they then decided to switch to a different loan, the ones who had paid upfront lost the whole fee, while those who wanted to add it to the mortgage paid nothing. We didn't think that was fair, and so have introduced the withdrawal fee instead."
Abbey charges a £200 application fee, which is retained even if you switch your application from one Abbey product to another, while the Yorkshire building society requires applicants to pay part of its application fee upfront and part on completion (this can be added to the mortgage if the borrower prefers). The society will keep the part paid upfront if the applicant changes his or her mind, even if it is to switch to another Yorkshire loan.
Nationwide building society's reservation fees range up to £995. Strangely it will give you a refund if you change your mind and want to switch to another lender's loan, but if you decide you want a different Nationwide deal it will keep the fee and charge you separately for the new deal you have chosen.
A spokeswoman for the Halifax said that the bank charges no fees up front and so the applicant would not lose out on cancellation.
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