Claiming back unfair mortgage closing or exit fees Advice from LettingFocus.com

UNFAIR MORTGAGE CLOSING FEES - ADVICE FROM LETTINGFOCUS.COM

LettingFocus.com property expert David Lawrenson explains why one fee your mortgage company charges may be unfair. Ask us for more advice.

Property expert David Lawrenson of www.lettingfocus.com says, "The government has told mortgage lenders that they can’t impose fees at the end of a mortgage that are far in excess of the contracted terms at the outset of the mortgage loan. And the way has also been opened for people to make claims where they have been overcharged in the past."

We have a competitive mortgage market in the UK, probably the most competitive in Europe and though other European countries are catching up they still have a way to go before they are as competitive, espeially on buy to let mortgages.

However, the competition in the UK mortgage market results in lots of clever marketing stuff where lenders advertise attractive headline mortgage rates to get business - often with rates that are close to Bank of England bases rate for a time. As this hits their profits, they inevitably try to make them up by charging high mortgage fees.

There is nothing wrong with this of course and it’s a reflection of a healthy mortgage market but sometimes the banks and building societies are inclined to push things just a little too far.

Unfair mortgage exit fees

Essentially, a mortgage exit fee is the fee the lender levies to cover the cost of administrating the work involved when a borrower either pays off their mortgage or moves to a different mortgage company.

It’s important to be clear here that we are not talking about redemption penalties which are incuured when one comes out of a special discount or fixed rate early or before a tie in ends. That is a different issue and is not under scrutiny by regulators.

Mortgage closing fees have shot up

The mortgage exit fee has been going up all the time over the past 10 to 15 years as lenders try to squeeze more profit from their mortgage accounts. The typical fee was about £50 ten years ago but is now anywhere between £100 and £400.

The problem as far as the Financial Services Authority sees it is that the true cost of closing a mortgage is much less than this. According to some expert it is really only around £70 and as electronic processing has increased it should have actually gone down in real terms.

And mortgage lenders have all too often quoted low exit fees at the outset of the mortgage, but have then raised them considerably by the time the borrower comes to pay off the loan.

The Financial Services Authority has now made it clear that the lenders must justify their higher charges, get rid of them or reduce them to a more acceptable level.

How to claim money you have been overcharged on your mortgage

Those lenders who have upped their exit fees above what they quoted at the outset of the mortgage will be worried because customers who have already paid a higher fee than they were originally quoted can now get a refund from their lender. The average refund is around £100.

It is more uncertain what might happen if you agreed a high exit fees when you first took out your mortgage because the Financial Services Authority has indicated that it won’t set a limit to what a lender can charge a customer.

But in the current spirit of the time it’s clear that the FSA hopes lenders will only charge a customer a fair exit fee so even where someone agreed at the outset to to high fee of say £200, they may still be entitled to claim a refund.

For people in this position, the best approach is to get in touch with their mortgage lender to try to agree a lower exit fee before the loan is repaid.

The Alliance & Leicester has already said that customers will only have to pay the fees stated in the original mortgage contract and other mortgage lenders have reduced their fees though in most cases they are still above what most independent experts think is the cost of administering the exit.

What impact will this have overall?

Probably not much as what the mortgage companies have now lost in exit fees is now bound to be made up on other ways.

In particular, I expect so called “arrangement fees” and survey valuation fees to continue to go up to compensate. (To see how much valuation fees are loaded up by lenders get a quote direct from your local surveyor for a private valuation report!)

So if this seems a little like trying to push water uphill, then it is.

Neverthless, it is still a great opportunity for borrowers to get some money back.

But no one is going to just give you the money. You’ll have to ask for it. Your first step is to write a letter of complaint to their mortgage lender. It is also best (though not essential) if you still have the old paperwork containing the original mortgage contract.

The problem is that many people won’t have kept it and many more may not bother to make a claim anyway.

About David Lawrenson and Lettingfocus.com

If you need more advice on mortgage fees or unfair mortgage charges please contact me. I’m David Lawrenson from property investment mentors lettingfocus.com.

I’m the author of the buy to let book “Successful Property Letting - How to Make Money in Buy to Let” which is the UK’s top selling property title. Click here to buy the book: property book. The new edition is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on buying below market value.

What’s unique about lettingfocus.com is that we offer independent landlord coaching because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, estate agent or bridging loan financier and do not receive commissions from any of these sources either.

We offer advice both at our property seminars and also on a one to one basis.

Lawrenson and Lettingfocus.com – Freelance Property Writer, Speaker and Consultant

I am an independent expert on the UK property market and a well known property investment blogger. I contribute to newspapers and a host of property websites as a freelance property journalist.

My work as a property consultant and property speaker also stretches to helping companies such as banks, building societies, housing associations and web portals with their buy to let and property products and services.

You can read more about my buy to let networking programme at my website lettingfocus.com. For for information, please contact me or follow the links below.

My next London property investors seminar meeting is coming soon.