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News: Drive-by mortgage robbery

Thu, 14 Jun 07

Mortgage companies are ripping off borrowers with ridiculously expensive property valuationsc - even where homeowners are taking on small loans or staying in the same property...

In some cases, valuations cost the lender as little as £20. Borrowers buying a property are usually happy to pay for full valuations to satisfy themselves that their home is worth the money, but if they are staying put and simply switching to a new lender, as millions do each year, a valuation will be of little use.

But the new lender is increasingly likely to insist on a valuation costing a borrower up to £1,000. Valuations could be required even where there is little risk to the lender in terms of the size of the loan.

To add insult to injury, the valuation process may involve hardly any work. It is simply another source of profit to lenders, which take commission of anything up to £345 merely for 'handling' the process. The valuer, naturally, takes a fee on top of this.

In total, a homeowner remortgaging a £250,000 property - even if they borrowed a tiny fraction of this sum - could expect to pay £600 to £800 in valuation fees.

Some valuations involve a qualified surveyor inspecting a property inside and out. But thousands are 'drive-by' valuations, where the valuer is mainly making sure the property exists. A quarter of remortgage valuations are done this way, says The Council of Mortgage Lenders.

Growing number of valuations ‘automated’

But the CML admitted a growing number of valuations are 'automated'. This is where a computer is used to calculate the value of a home using data such as house prices from the neighbouring area, features of an individual property and the sales process.

This can be carried out remotely from anywhere in the country, at a cost of as little as £20. By 2011, 55% of remortgage valuations will be carried out this way, says the CML.

Lenders have come under huge pressure to make charges more transparent so borrowers can compare deals. The Financial Services Authority (FSA) has forced lenders to come clean about mortgage account closure fees following sustained campaigning by Financial Mail.

Research shows that most borrowers still look first at the interest rate charged by the lender, plus any upfront arrangement fee, when choosing a deal.

Banks ‘big offenders’

But banks such as Northern Rock, by far the worst offender in this respect, continue to apply big fees for a range of add-ons.

On top of arrangement fees that may be up to £2,000, remortgagers to Northern Rock would be likely to pay a valuation fee of £615 for a property worth more than £250,000, of which £345 is commission taken by Northern Rock.

The bank says this is for 'facilitating, accepting and assessing the valuation'. It stresses, however, that all of its valuations involve a physical inspection.

Alliance & Leicester's valuation charge for a £250,000 property is £340 including a £125 'administration' fee for the bank. BM Solutions - part of Halifax - will charge £310, even where the valuation is automated and carried out without viewing the property.

Many remortgage deals do not carry valuation fees. With these, costs borne by lenders are instead rolled into the rate or arrangement fees, so borrowers still need to work out if they will be better off. But it is easier to see at a glance how costs compare.

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Nationwide is one lender that never charges valuation fees on remortgages. This appealed to Sylvia Scott, 61, who is switching to Nationwide from the Halifax this week. She is taking out a mortgage with a rate fixed for five years.

As her loan is under half the value of her flat in Notting Hill, west London, she was not prepared to pay for an expensive valuation. Nor should she need to, say brokers London & Country, based in Bath, Somerset, who set up the deal.

Divorcee Sylvia, who sells costume trimmings to West End theatres and film studios, says: 'There's only a single, modest arrangement fee with this loan and I know precisely how much I am paying. It's been very simple.'

Do your homework and don't overpay for borrowing

Mortgage advisers, as well as borrowers, typically dislike remortgage deals where valuation or other fees apply.

'If a customer is borrowing a small portion of the property's value, they are perfectly entitled to ask the lender why they need an expensive valuation,' says Ray Boulger, of national adviser John Charcol.

James Cotton, mortgage commentator at London & Country, says: 'Where it is a remortgage and the borrower has a lot of equity, the valuation can be done quickly and probably won't even involve a visit. The customer could rightly feel put out if they paid a full fee.'

Source: This is money

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