In the wake of FSA criticism, some lenders are abandoning ‘excessive’ exit fees. But some are not
In the wake of the victory for people-power in the row over excessive bank charges, it was only a matter of time before attention turned towards mortgage lenders and the fees they extract from their home loan customers.
Mortgage lenders often charge what is known as mortgage exit administration fees (MEAFs) when borrowers pay off their mortgage or switch to another lender to cover the staff and other costs involved. But, just as the bank charges were deemed punitive, and therefore unfair, so are these exit fees, say experts. The typical exit fee is around £200.
The FSA has put pressure on lenders since January, when it highlighted that many mortgage customers were being charged higher exit fees than expected. Last week the authority announced that most lenders had either got rid of the fees or reduced them. And although the deadline the FSA set for lenders to declare their intentions with regard to the charges, some have not indicated what they plan to do.
Ray Boulger, senior technical manager at leading mortgage broker John Charcol, says lenders are choosing to either resist change (as Barclays/Woolwich has done, leaving its exit fee at £275) or modify these fees in one of three ways:
removing: abolishing the exit fee completely. Boulger says, ‘Cheltenham & Gloucester/Lloyds TSB led the pack in the first camp by being the first major lender to announce they were abolishing the fee and were followed by a number of other major lenders.’ The lender was joined by Royal Bank of Scotland, Northern Rock and HBOS.
reducing: owering the fees
replacing: abolishing it but replacing it with another fee of the same amount but with a different name. Boulger calls these lenders ‘perhaps the most cynical group’. which nevertheless are meeting the FSA’s requirements, are those lenders which have abolished the exit fee but replaced it with a new fee for an identical amount but called it something different. The new fee names either no longer refer to the costs of closing the mortgage, or are stated to cover something else difficult to measure. Lenders who have ‘reclassified’ the exit fees include Abbey and the Bank of Ireland Group.
One lender, Principality, has increased its exit fee – by £17 to £152.
Boulger says, ‘Even after the deadline, we are still waiting to hear final confirmation from several major lenders, including Alliance and Leicester, Scottish Widows and Mortgage Express, which indicates that some are going to tough it out with the FSA. A typical exit fee is around £200 which has risen a staggering 33 per cent in the last two years. There is however now no hiding place for lenders. They have to be open about what they are doing and will have to be up front in justifying these excessive fees.’
Boulger says those who have redeemed mortgages in the last four years are likely to have ‘a very strong case’ for seeking compensation from their lender. That figure would come to around ten million mortgages, he says. ‘I would estimate that the total compensation payable will be at least £50m and probably in the region of £100m.’