Beware unnecessary fees for sub-prime advice

After the overspending of Christmas, and the January sales, personal debt can be at its highest and often out of control. Many borrowers will find themselves in such bad credit problems that they will need to remortgage their home to pay for their spending.

However, Charcol.co.uk is urging borrowers to see the right people to get advice. Research from Charcol.co.uk, the UK’s leading fee-free mortgage broker, has found that other brokers charge a range of fees which can be as high as 10%.

Katie Tucker of Charcol comments: “January is typically the longest month between paydays, so borrowers feel the pinch of their mortgage payments, particularly if their initial rate has come to an end and it’s time to remortgage. Borrowers who have credit problems are the most vulnerable; they tend to turn to one of the many sub-prime brokers available, to consolidate the debt into one loan, second mortgage or remortgage. However, there is a vast array of different fees charged by brokers, and borrowers who feel hopeless can often pay a great deal of money unnecessarily. Our research has found that some brokers charge as much as 10% for their advice to sub-prime borrowers.”

For example: On a mortgage of £150,000, Charcol’s new exclusive 6.74% fixed rate until 31/10/10 with a £845 arrangement fee (the overall cost for comparison is 7.6% APR) has a cost of credit over the

initial rate period of £29,500, which translates to an annual real rate of 6.94%. However, if you arrange this through a broker that charges a typical 3% additional fee, this cost soars up to £34,000, an annual real rate of 8.00%.

Tucker continues: “Additionally, many borrowers don’t realise that if they have made their mortgage payments in full and on time for two years, or have not been late for loan or credit card payments, they have often repaired their credit rating, and will now qualify for a normal prime mortgage. A benefit of using a broker such as Charcol, who has the ability to recommend ‘sub-prime’ and ‘prime’ lenders, is that they can often place a mortgage with a mainstream prime lender. Most specialist sub prime brokers are unable to do this, meaning that borrowers are often given a high rate when it is simply not necessary.”

In the mainstream ‘prime’ market, charging a fee for mortgage advice allows truly independent advice, however, lenders pay brokers much higher commission for sub-prime mortgages which makes some companies’ additional fees seem excessive. Charcol does not charge a fee at all for its advice to borrowers who have had credit problems, and always does all it can to place them with a mainstream lender if possible.