With most buyers borrowing well over £ 100,000 to buy their property, lenders' exit fees – usually in the region of £ 50 to £ 300 pounds – are a tiny percentage of the overall mortgage costs. Yet these penalties have created so much anger, that some borrowers have taken on the big lenders – and won.
The problem – as mortgage brokers should explain to their clients – is that, unlike other fees associated with mortgages, the exit fee is not normally fixed at the time the client signs up. Over the past couple of years, a number of lenders have taken advantage of this and used it to hit borrowers with massively increased penalties when they come to redeem their mortgages. Alliance and Leicester has raised its mortgage exit fee by £ 100 to £ 295. Cheltenham and Gloucester charges £ 225 and Nationwide has introduced a fee for the first time and charges £ 90. Some of the largest percentage increases have come from smaller lenders. Skipton Building Society raised its "redemption administration fee" from £ 75 to £ 175 (133%), while Lambeth Building Society raised its "discharge fee" from £ 65 to £ 150; an increase of 131%. The trend has been big news in the mortgage industry with BBC Radio 4's Money Box and BBC Radio Five Live's Wake Up To Money launching their own investigations. www.mias-ltd.co.uk/news-index.htm
According to the Council of Mortgage Lenders, the fees are going up for a variety of reasons, one of which is that the services are being charged more accurately. However, cynics have pointed out that exit penalties are providing fees which are counter-balancing lower interest rates. Firms have claimed that these hikes are necessary because of the increased costs and extra work involved in taking property deeds out of storage and producing a final account statement. Yet this justification appears hollow when one of the occupants that property deeds are now held electronically at the Land Registry. The practice of charging these inflated exit fees has been likened to entering a car park where the prices were clearly displayed, only to find that they had more than doubled when it was time to pay.
The industry regulator, the FSA, has recently held discussions with several lenders about their exit fees, following a number of complaints to the Financial Ombudsman Service (FOS). So far, none of these complaints have been resolved by the FOS, possibly because lenders are wary of the FOS finding against them, thereby setting a priorent. With lenders prepared to settle cases to avoid publicity, some canny borrowers have successfully argued their cases.
Mark Smith, from London, complained to C & G that the closing administration charge on his mortgage, taken out in 1999, had been increased by 350%. He persuaded the lender that a fair rate for him to pay would be based on a 50% increase in costs and C & G duly accepted that he should pay only £ 75, not £ 225.
The message to consumers, then, is clear: If you think you've been treated unfairly, do not suffer in silence – be prepared to haggle with the lender.