Lenders told to cut “unfair” mortgage exit fees

26 January 2007

Mortgage lenders who impose unfair exit fees will be forced to cut the amount they charge and reimburse past customers, it was announced today.

The regulator, the Financial Services Authority (FSA) has told banks and building societies that they must either reduce fees, charge nothing – or justify any hikes they have made.  Lenders could also be forced to compensate past customers who were hit by higher exit charges when they opted out of their contract.

Mortgage Exit Administration Fees (MEAFS) kick in when a customer moves their mortgage to another lender, or pays off their home loan.  But in the face of the growing number of so-called “rate tarts” – who move their mortgage from lender to lender, in search of a better deal – many companies have upped their exit fees, in a bid to recoup some of the cost.

In most contracts, exit fees aren’t fixed, and so they can change over time.  Some customers have seen fees upped by more that 100% since they took out their mortgage.  Borrowers at Alliance & Leicester have seen the amount they’re charged in exit fees almost double to £295 since 2003.

In response to growing anger about these practices, the FSA has today issued a statement of good practice.  Under its terms, lenders will – by the end of February – have to declare if they are going to charge no exit fee or revert to the original fee in the contract.  If they refuse to do this – and continue to charge fees higher than in the original contract – then the FSA says they’ll have to “justify their position”.

And the FSA says past customers unhappy about the fee they paid must be treated in the same way as current customers.  So homeowners could be in for a windfall of up to £200, if they believe they were the victim of lenders unfairly upping their exit fees.