Firms waive excess mortgage exit fees

28 February 2007

Most mortgage lenders have bowed to demands from the regulator and stopped charging excessive fees for closing a mortgage.

Last month, the Financial Services Authority (FSA) told lenders that they’d have to justify raising these fees – and if they couldn’t do so by 28 February, then they would have to waive the fee or stick with the original charge. The FSA says so far, no mortgage lender has opted to keep the higher charges.

FSA officials have been investigating this issue since 2005, when it became clear that many mortgage lenders were hiking their charges for paying off a mortgage early – without warning the customer. Many of these charges have doubled to between £200 and £300 – even though they’re only supposed to cover routine administrative work. After looking into the issue, the FSA said that raising exit fees was unfair, especially if there was nothing mentioned in the mortgage agreement giving the lender the power to do so.

Now, many mortgage-holders could be in for a windfall. Homeowners who’ve paid the raised charges will now be able to go back to their former lenders and ask for some of the money back. One mortgage lender – the Northern Rock bank – has set aside £15m to compensate former borrowers for being overcharged.

However, you’ll have to have your paperwork in order to make a successful claim. FSA spokesman Robin Gordon-Walker warns: “Former customers will have to be pro-active about this.” Lenders won’t be ordered to trawl through their records to see who might have been overcharged in the past – and borrowers will need to have kept their original documents, to prove they were overcharged when they paid their mortgage off.