Lenders slammed over valuation fee profits

ISVA Council Member, Roger Conway, takes a particular interest in transparency relating to mortgage valuation fees and has forwarded the following for circulation to ISVA members.

Lenders are failing to be transparent about the cost of valuations despite efforts to simplify charges in the sector, according to trade bodies.

The issue, they say, lies in the size of the margin lenders keep from each valuation fee. While most of the fee goes to the valuer, lenders will keep varying proportions for themselves, normally labelled as an administration fee.

Taking larger lenders as an example, there is a big difference in the overall cost of valuation fees, as well as how these are presented and how much of the fee is kept by the lender.

A well-placed source said the average fee a surveyor would receive on a property worth £196,999 – the UK average – would be £200-250.

However, the amount kept by major lenders varies between nothing and up to £100 on the average property.

Royal Institution of Chartered Surveyors residential director Andrew Bulmer says that when valuation fees are high enough to rival survey fees, consumers often think they have paid for a survey instead.

He says: “It is reasonable for a lender to charge an administration fee. At the end of the day, lending is a business and businesses should make a reasonable profit. But if the valuation fee that they charge is out of all proportion and recognition to the real fee that is being incurred, then that would seem to be excessive. It would seem to be not transparent and it risks consumer misunderstanding of the product that they’re getting.”

The issue has been flagged up with the regulator.

Association of Mortgage Intermediaries chief executive Robert Sinclair says: “As part of the FCA roundtable discussions into competition in the mortgage market which were held last year, we looked at areas where the amount paid by the consumer may not fully reflect the true cost of the service.

“One of the areas debated was whether there was a significant gap between a fee charged for a valuation and the amount paid to the valuer. At debate here is on whose behalf the valuation is being undertaken and whether any gap is material enough to cause the customer to challenge the fairness of the fee.”

E.surv business development director Richard Sexton says: “It is an area which causes some confusion and there isn’t a consistent approach. I’m sure lenders aren’t setting out to mislead, but the way that they describe fees isn’t consistent and that generates confusion as to what it is you’re actually paying for.”

Research by Mortgage Strategy found Lloyds Banking Group would charge a £350 valuation fee and keep £100 on a property worth £196,999, the current average.

Royal Bank of Scotland charges a £75 administration fee on top of a £173 standard valuation on houses priced between £100,000 and £250,000.

HSBC keeps £35 of the fee, if one is charged.

TSB would charge a £350 valuation fee on the average UK house, though also gives some free valuations. But the firm would not specify how much of the fee it kept.

Barclays charges £190 on properties worth up to £200,000 but it also refused to say how much of the fee it keeps.

But some lenders, such as Santander, Nationwide and Coventry, do not charge valuation fees at all for averagely priced properties.

In November 2015, the Council of Mortgage Lenders and Which? launched a tariff of charges designed to make it easier for borrowers to understand fees and compare deals.

But industry insiders say there is still an issue with valuation fees, which were not singled out by either body.

One surveyor, who wished to stay anonymous, says: “One of the challenges is what the lenders call their fees. Some lenders call it an admin fee, or an application fee, and they do retain some. But the ones that really cause confusion are where they call the whole thing a valuation fee.

“Because [consumers have] paid what they call a valuation fee, they expect often to see the report that we produce. When they see that, they think they’ve had a survey done for them, whereas in fact they’ve had a valuation, and there is a distinction.

“So some people might be making decisions based on erroneous assumptions.”

A CML spokesman says that the trade body can no longer intervene on this topic.

Which? and CML’s November 2015 report says: “Cost reflectivity concerns the extent to which administrative fees charged reflect the costs incurred by lenders.

“For a trade body such as the CML, there are sensitivities associated with investigating cost reflectivity due to the commercial and competition law considerations associated with handling members’ data about costs.

“Therefore the CML is clear in its view that having an active role in assessing cost reflectivity or discussing industry costs in any detail is beyond what it can achieve. Recognising this, Which? will pursue this issue separately.”

A Which? spokesman says: “Thousands of people supported our call to end confusion around the cost of mortgages, so we’re pleased that our work with the CML has resulted in simplified fees and charges.

“This new approach will make it much easier for people to compare mortgage fees. Which? and the CML are now keeping implementation under review to ensure it delivers benefits for consumers.”