Mortgage lenders have seen the light on excessive mortgage exit fees
08/02/2012 
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Most mortgage lenders have obeyed demands that they stop charging excessive fees for closing a mortgage. In January, the Financial Services Authority (FSA) told lenders that they would have to justify raising mortgage “exit” fees.
The FSA said if they could not do so by 28 February, then they would have to agree to charge no fee at all, or stick with their original fee.
An FSA spokesman said so far, no mortgage lender had opted to keep the higher charges.
“Certainly the impression we are getting as we go through the responses is that most mortgage lenders have gone for the original mortgage exit administration fee option,” said Robin Gordon-Walker of the FSA.
Investigation
The FSA has been investigating the issue since 2005 when it became clear that many banks and building societies were quietly raising their charges for paying off a mortgage.
The charges were often far above the level of fees mentioned in their customers’ original mortgage agreement.
Many of the fees charged by lenders have doubled to between£200 and £300.
However, they are supposed to cover only routine administrative work, such as handing over property deeds to homeowners or their solicitors and closing the mortgage account.
After investigating the issue, the FSA suggested that raising the fees might be unfair, especially if there was nothing mentioned in the mortgage deal giving the lender the power to do so.
The regulator also pointed out that higher charges could only be justified if they reflected legitimate cost increases.
Compensation
People who have paid the raised charges will now be able to go back to their former lenders and ask for some of their money back.
“Around 10 million mortgages have been redeemed in the last four years,” said Ray Boulger of the mortgage broking firm John Charcol.
“But the number of people who claim compensation will no doubt be largely influenced by the amount of media coverage this topic receives.
“However, I would estimate that the total compensation payable will be at least £50m and probably in the region of £100m.”
One problem is that those who want to claim some money back will probably need to have kept the original documentation, to prove they were overcharged when their mortgage was paid off.
And lenders will not be required to trawl though their records to see who might have been overcharged in the past.
“Former customers will have to be pro-active about this,” said Robin Gordon-Walker of the FSA.
The Northern Rock bank has set aside £15m to compensate former borrowers for being overcharged.
Rick Adlam has been helping clients with home loan finance since 1985 when he was home consultant with AV Jennings. Rick started Equity Home Loans in 1996 to help homeowners become property investors. Rick currently consults in the development of Mr Mortgage for mortgage brokers and HomeMate for new home buyers.
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