Exit fees – deadline for lender decisions 28 February

Written on 24 April 2007

A day ahead of the deadline set by the Financial Services Authority (FSA) for mortgage lenders to decide what course of action they intend to adopt regarding the terms of their exit fees, Ray Boulger, senior technical manager at Charcol comments:

"The recent FSA report on Exit Fees addressed the long standing problems surrounding these fees and made it clear that the current lack of transparency for borrowers would no longer be acceptable. It was stated that if lenders have increased their exit fee because of a claimed increase in their costs between the time the mortgage was arranged and redeemed, then ‘the contract must contain a clear and fair term that allows the lender to do this.'  I am not aware of any lender that meets this requirement and thus most increases in exit fees appear to have been illegal."

Boulger continues, “So far, aside from a few lenders, e.g. Portman and West Bromwich, who have reduced their exit fee, there has been a deafening silence from the rest of the market and I wait with great interest to see what announcements are forthcoming once the deadline has passed.  Of the options offered by the FSA most lenders will no doubt in future charge the exit fee stated in the KFI, which at least will make robust comparisons of different mortgages easier.  Prior to this FSA report the exit fee was the only significant unknown fee in the mortgage process – the only real unknown quantity.

"Many borrowers who have redeemed a mortgage in the last 4 years – i.e. since excessive increases in exit fees started to be imposed - will have a very strong case for seeking compensation from their lender.  However the problem could be that many will probably have discarded the documentation for a mortgage they redeemed some time ago.  As a result they are less likely to make a claim for compensation, although providing they can remember who they had a mortgage with they can still claim."

Boulger concludes, “Around 10 million mortgages have been redeemed in the last 4 years 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."


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