Mortgage lenders are being told to review their exit fees on the grounds that they may be unfairly priced.
Has your mortgage lender recently increased the cost of you paying off your mortgage? Redemption penalties or exit fees - call them what you will - lenders have increasingly been using them as a means of dissuading home owners from 'rate-tarting'.
When you switch your mortgage to another lender to get a better rate, or even when you finally pay off your mortgage, your current lender will often charge you a one-off fee. These fees are supposed to cover costs such as changing the registration of the property at the Land Registry and handing over any paperwork and information to the new mortgage lender or to the customer who's simply finished paying off their mortgage.
Your mortgage contract will no doubt state that they can change the cost of this exit fee at any time and this is, indeed, true. However, unless the customer has explicitly agreed to the precise costs the level of change must comply with the Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations) and the general law.
For example, your lender could impose exit penalties of 2% if you redeem your mortgage in the first two or three years. In this instance you know what the cost will be when you sign up.
But the city watchdog, the Financial Services Authority, has become increasingly concerned that some lenders are not being as clear as they should be in explaining the costs of redemption and that the increases aren't always proportionate to the costs of administering the paperwork connected with ending a mortgage.
According to Moneyfacts, some of the increases in exit fees have been sizeable over the last decade. for example:
Mortgage Provider | 10 yrs
ago | 5 yrs
ago | Today |
|---|
| Abbey | £50 | £85 | £225 |
| Alliance & Leicester | £90 | £150 | £295 |
| Bank of Scotland | £50 | £150 | £195 |
| Cheltenham & Gloucester/Lloyds TSB | £35 | £50 | £225 |
| NatWest | £65 | £85 | £225 |
| Woolwich/Barclays | £50 | £95 | £275 |
As a result, the FSA has asked certain lenders to consider whether their terms might be unfair, and to provide it with evidence of how they've come to their decisions to increase exit fees. They expect answers over the next few weeks and will make a statement on the issue in the Autumn. Considering the Office of Fair Trading has recently forced credit card companies to cut their own penalty charges, it'll be interesting to see if the FSA does the same for exit penalties.
In the meantime, if you're trying to switch your mortgage or to pay it off and you find yourself facing an unexpectedly high fee, don't be afraid to challenge it on the basis that it is unfair.
Looking for a better home loan? Compare mortgages right here at the Fool.
