Mortgage Fees Refund

MoneyExtra September 2007

The new squeeze on mortgage exit fees and how to get your money back if you've been overcharged...

Mortgage exit fees have rocketed in the past year or two. Time was when giving you back your deeds at the end of the mortgage term would have been all part of the service. Until recently, some mortgage lenders, such as Nationwide, made no charge, while other lenders made a charge of a few pounds to represent the time and effort of checking over the documents and sending them back to you once you had redeemed your loan.

Of course, that was when mortgages lasted 25 years and you were glad to get a loan at all, let alone quibble over the interest rate.

Over the past decade the mortgage market has seen increasing competition, with mortgage interest rates slashed to attract your custom and a plethora of deals, many of them for only two or three years at a time. This has imposed an increased administrative burden on lenders but it has also given them an opportunity to invent a wheeze to deter mortgage-switching, and recoup by stealth some of the cash they have been losing by cutting headline interest rates to make their loans seem attractive.

Hence the rise and rise not only of arrangement fees at the start of a loan but also exit fees when the loan is redeemed. Exit fees have soared by around 350% over the past 10 years, from around £50 or £80 to an average of £200 and in a few cases even more.

Not only have fees gone up to eye-watering levels in general, but some sneaky lenders have been increasing their fees during the term of a loan. So, when you signed up for the loan you agreed to pay one amount, but when you come to redeem you find the fee has doubled. The bad news for the lenders is that these massive charges, which often bear no relation to the cost of the service being provided, could be contravening the law in the same way that massive bank overdraft penalty charges and credit card penalties have been found to be unlawful.

The City watchdog, the Financial Services Authority (FSA), has stepped in to crack down on rogue fees and gave lenders a deadline of February 28 to come up with four choices:

charge no exit fees
charge the exit fee set when the loan was taken out
charge a revised exit fee, or
charge their current increased exit fee.

* Deeds Fee £50, Administration fee £175 (Source: Moneyfacts) The FSA said it was unlikely to investigate lenders taking one of the first two options, or the third option if the new fee was lower than the fee stated in the original mortgage contract.

However, lenders choosing to increase fees for existing customers would need to be able to justify their position.

Darren Cook, Head of Mortgages at Moneyfacts, says, "With lenders using exit fees as a means to deter customers switching to better mortgage deals, it is encouraging to see the regulator acknowledging the problem and dealing with it in an effective manner.

"Most consumers are agreeable to paying fees if they are able to see a return, for example by way of a lower rate, but exit fees have offered no tangible benefit to the consumer and have often been tucked away within the small print of the application, leaving many consumers completely oblivious to their future obligation.