Mortgage booking fee? Martin Lewis on his programme last night

Journalist: Samantha Downes, Currently at the I (business editing some Sundays (freelance) and Mortgage Solutions

ended 26. May 2022

Just looking for comment on booking fees for mortgages. How do they work? Who can use them? Do you recommend them?

6 responses from the Newspage community

"In a word, we 'sometimes' recommend them if it saves the client money overall. Ultimately it's really important that we don't get fixated on rates, it's what costs the client the least overall that matters and that's where a broker comes into their own. For most clients it would make sense to pay a booking fee if it saved them in excess of that fee in interest over the duration of their fixed rate. On the flip side, if the booking fee is more than the interest saved you may as well chuck your money down the drain."
"A mortgage booking fee is a fee for buying a particular mortgage product from a lender. More often than not, the rule goes that if you pay a booking fee, you tend to get a lower interest rate. However, it's not always beneficial to pay this fee as they're typically a fixed amount rather than a percentage and you may not recoup the cost over the initial period. This means that depending on the size of the mortgage you're applying for, it may or may not be cost-effective over the term. You can add the booking fee to the loan in most circumstances rather than paying it upfront, however, this is lender dependent. Although if you do, interest is generated on that additional fee at the prevailing rate for the mortgage term. Are they a good idea? There is no binary answer to this because it's dependent upon a borrower's situation and preferences. It's the role of a mortgage broker to take everything into account, much of which many people won't even realize is going on in the background and present a recommendation to borrowers in their best interests. Sometimes this will be with a booking fee, sometimes not. As an aside, it should be noted that Martin Lewis is not a mortgage broker, and never has been. ITV have a duty of care to viewers and he should be mindful of this fact when he's spouting on TV because he can causes more harm than good when it comes to specific mortgage and financial advice. Yesterday's episode will have induced in many people a sense of panic and urgency to remortgage, stating that rates will keep rising. This will become a self-fulfilling prophecy because we'll then see a huge surge in remortgage clients, this will overwhelm mortgage lenders and to get off the top of the sourcing tables they will reprice, and then the second becomes the top lender and again they will be swamped and reprice. By saying that rates will increase, he will be partially responsible for rates increasing as lenders try to get off the top spot. As an FCA regulated broker, if I stood up on national TV and said some of the things he does, I'd get shut down, and sharpish".
"Booking fees are generally a few hundred pounds and paid on application to the lender, sometimes instead of, but sometimes as well as, a valuation fee. Lenders may also charge a larger arrangement fee, which can be paid upfront or added to the mortgage account in many cases. Fees, in whatever form, charged by the lender simply form an overall part of the pricing model; so we often see lenders offering two or three deals that could be appropriate for a client's needs, for example; a 5-year fixed rate that will have a no-fee option with a 3% rate, a 5-year fixed rate with a £495 fee and a 2.75% rate, and another 5-year fixed rate with a £999 fee and a 2.5% rate, all from the same lender. Which is the "best" deal is then dependent on the loan size: the larger the loan, the more benefit there is to paying the fee and taking the lower interest rate, the smaller the mortgage the more advantage there is in taking the higher rate and not paying a fee. Part of the mortgage broker's job is to look at these factors to be able to recommend the most appropriate and cost-effective mortgage for a client's needs and circumstances, so this is the sort of thing we look at on each and every case."
"Booking fees are a lot less common than they used to be and in many cases you can actually secure a rate without paying anything upfront. Most lenders have replaced booking fees with arrangement fees, the key difference being that arrangements fees can be added to the loan so you can walk away from an application without committing anything financially. You can secure a new rate up to 6 months ahead of your current one expiring and in some cases as far as 9 months away."
"It's important not to get fixated on booking fees alone and miss the big picture here. The most suitable mortgage is the cheapest overall mortgage that meets the borrower's circumstances and priorities. This takes into account all the fees and the interest rate, as well as any incentives such as cashback or a free valuation or legal service. This can be compared over the initial fixed rate period to give a true overall cost for the mortgage. Looking at one aspect of a mortgage in isolation is a sure fire way to end up with a more expensive overall mortgage deal."
Clients looking to reserve a new deal to lock in a lower rate now ahead of their fixed term end date may need to pay a booking fee to do so. Some lenders allow clients to reserve a new deal up to six months before their deal end date but this may come with a fee of between £195 to £1495. (and potentially much higher for Buy to let deals) I am reviewing my clients existing mortgage, and future circumstances to see if it is best to wait, reserve a new deal now via a product switch, or remortgage away from their existing lender, penalties and all!, to secure a good low rate longer fixed term deal. All options should be considered in line with clients short, medium and long term plans and I'll stress it again, independent whole of market mortgage advice is vital to ensure your mortgage decisions do not come back to bite you in the future.