UNFAIR MORTGAGE CLOSING FEES - ADVICE FROM LETTINGFOCUS.COM
Letting Focus landlord expert David Lawrenson explains why one fee your mortgage company charges may be unfair.
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 so the way has also been opened for people to make claims where they have been overcharged in the past."
The competition in the UK mortgage market results in lots of clever marketing stuff where lenders advertise attractive headline mortgage rates to get business - in the past, even with rates that are close to Bank of England bases rate.
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. A good example is "mortgage exit fees."
UNFAIR MORTGAGE FEES
Essentially, a mortgage exit fee (sometimes called a closing fee or 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 incurred 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 here.
The mortgage exit fee or sealing 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 twelve years ago but is now anywhere between £150 and £500.
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 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 IF YOU THINK YOU HAVE BEEN OVERCHARGED
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.
CONTACT YOUR MORTGAGE LENDER
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.
A few banks have said that customers will only have to pay the fees stated in the original mortgage contract and other mortgage lenders have reduced their fees too though in most cases they are still above what most independent experts think is the cost of administering the exit.
WHAT IMPACT WILL THERE BE?
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, we have seen the now ubiquitous "arrangement fee” and survey valuation fees 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.
For more one to one advice get in touch.
ABOUT DAVID LAWRENSON AND LETTINGFOCUS
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