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Reading this Money Supermarket article about various fees associated with buying a house, I came across an "Own Building Insurance Fee", which is described as follows.

This is charged by your mortgage lender for checking you have taken out building insurance if you choose not to buy it from them. The fees are fairly small – around £25 to £50 each.

The assesment of "fairly small" seems to be relative to other fees as it still seems to me like quite a lot for what I imagine is essentially glancing at a document. I can't escape the feeling that the primary purpose of the fee is to encourage homeowners to buy insurance from the mortgage provider, by financially punishing them for buying elsewhere.

Is this not a breach of anti-competition law?

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    The specific act is called Tying and indeed is a violation of EU regulations. I don't think the UK has changed the law in this area yet so the rules would still hold.
    – MSalters
    Jul 13 '20 at 15:59
  • Its a bit more than "glancing at a document". Someone has to examine the policy to ensure that it covers the things that the mortgage company wants to have covered, that the insurance company that issued the policy is legit, that they did in fact issue the alleged policy, and that the person and property named in the policy match the mortgage. They may also have to store copies of the paperwork in case they ever need it (like if the building burns down taking the mortgagee with it). This stuff takes time, and in business time is money. Jul 15 '20 at 15:31
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It's only a breach of competition law if performed by a business with a "dominant position in a market". If the business does have such dominance, it appears to be a violation of section 18(2)(d) of the Competition Act 1998:

(2) Conduct may, in particular, constitute such an abuse if it consists in—

...

(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts.

Most of the time, dominance can be considered as holding 50% or more of the market, but has also been considered to be as low as 40%. Looking at statistics on mortgage lending market share from 2018, nobody appears to have a dominant market position so arguably no competition law breach has been committed.

It could also be a cartel offence under the same Act if every mortgage company agreed (informally or formally) to charge such a fee, but not if everyone is simply independently copying each other absent any specific evidence of agreement.

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  • Hmm, the conclusion of the contract isn't exactly subject to supplementary obligations though (i.e. buying insurance from the lender). I can still buy insurance elsewhere and conclude the contract, but it would just probably be more expensive for me overall. And it means that the insurance provider doesn't need to make the pricing of their insurance product very competitive for it to be effectively cheaper. Jul 15 '20 at 20:34
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    Yes, I did struggle on that point myself, but I would argue that the "supplementary obligation" is the fact that you are required to buy their insurance or pay a fee - they won't conclude the contract without one of those being performed. So, if the lender had marketplace dominance, I would argue their behaviour constitutes abuse since either way they benefit unfairly: either by sucking up all the insurance business, or by profiting off a required condition (the holding of the insurance) by charging an outsized fee not commensurate with the work performed.
    – Matthew
    Jul 16 '20 at 12:38
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No, you got this completely wrong. It’s competitive, not anti-competitive. The company found that by connecting the computer systems of their mortgage and their insurance departments they could do the insurance check cheaper, and passed the cost savings on to their customers. That’s competitive.

PS. Some people here actually argue that it is anti-competitive not to charge customers for some action that is either not performed or performed at very little cost. In other words, the insurance company should raise its prices for some customers to avoid being anti-competitive. Weird.

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    Are you saying that it's competitive because the fee is smaller than it might otherwise be? If so, would it not be even more competitive to charge no fee at all for this? Jul 12 '20 at 9:46
  • A company is free to be as competitive as it likes or not. No fee in cases where it doesn't cost the company money, and a fee in cases where it does cost, that's entirely reasonable.
    – gnasher729
    Jul 12 '20 at 11:58
  • You are saying they are competing on the price of the building insurance check? Against whom? The check is for the morgage lender's benefit, not mine. They would be the only ones who would do this, I can't shop around for a better price. Jul 12 '20 at 18:08
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    "A company is free to be as competitive as it likes or not." - yes, as long as they are not anti-competitive. My question was is this anti-competitive, because it seems to me to be so. Jul 12 '20 at 18:09
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    @gnasher729 theres a difference between being "as competitive as they like" and being anti-competitive - in this case, you pay the mortgage company for the privilege of not having insurance with them, they get a cut of the pie either way. You either pay the mortgage company X for insurance, or you pay someone else Y for insurance and the mortgage company Z for not having insurance with them. Y+Z can often push third party offerings over X, meaning you would go back to the mortgage companies offering. That is anti-competitive.
    – Moo
    Jul 13 '20 at 1:54

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