Borrowers are urged to fight fees

Borrowers facing high mortgage exit fees which have escalated from the outset of the loan should tackle their lender rather than wait for the financial services watchdog to take any action.

Mortgage exit administration fees, the price paid by borrowers to change or end their mortgage deals, have risen from around £60 a decade ago to typically between £200 and £250 now.

The Financial Services Authority issued a statement 10 days ago saying it had 'asked some lenders to consider whether their terms might be unfair', adding that it felt that it was 'not clear that increases in mortgage exit fees were proportionate to any increases in associated mortgage exit costs incurred'.

However, despite this and contrary to some reports, the watchdog says that it will not be asking lenders to consider cutting the size of these fees.

'What we are concerned about is the lenders' unlimited right to vary these fees over the term of the mortgage and that is what we are asking them to justify,' said FSA spokesman Robin Gordon-Walker.

Lenders can currently raise an exit fee at any time. So, for example, someone who took out a five-year fixed-rate mortgage with Cheltenham & Gloucester/ Lloyds TSB in 2001 would have done so expecting to pay £50 at the end of the loan. Now the bank is charging £225.

A few weeks ago, Alliance & Leicester announced it was fixing its £295 mortgage exit fee - the highest on the market - from the outset of the loan. The only other lender to fix its fee at the beginning of the loan is Northern Rock, at £250.

Because these lenders have already fixed their fees, they are exempt from the FSA's investigation, even though their charges are among the highest on the market. Other lenders are under pressure from the watchdog to fix - worryingly, at any price they like.

'Where a lender has fixed a fee - even at a high rate - that takes them out of the work we're doing,' said Gordon-Walker. 'It's not so much a drop in fees we're after but for lenders to fix them at the outset.'

The FSA says it can seek a court injunction to get lenders to fix their fees, but that it is unlikely to use this route. It is hoping that lenders will agree to change their practice of varying fees and has given them a month to respond with evidence to state how, when and why they initiated a policy allowing them to vary such fees.

The FSA has written to less than 10 lenders, which, though it refuses to name and shame, includes Abbey. Abbey charges a £225 exit fee, which has risen from £85 five years ago and £50 a decade years ago. But the bank says it has no plans to fix that fee. 'We will be working with the FSA on this issue, but we maintain that our fee is legitimate and we maintain the right to review it,' said a spokesman.

Two firms of mortgage brokers have told Cash that the actual cost to a lender of the administration work involved in ending a mortgage deal is typically £65-£100, though Abbey insists this is not the case for its business.

'We don't see this fee as a profit-making vehicle and believe it is the correct amount to cover the cost of the business. Things such as changing the deeds, customer service and administration are not covered by the interest rate on the loan, so are covered by this fee. We maintain that we may need to review these costs from time to time,' said the spokesman.

Louise Cuming, head of mortgages at moneysupermarket.com, is sceptical about lenders' fees being a true reflection of costs incurred. 'Considering deeds are no longer a legal requirement and the majority of the administration is conducted online, it will be interesting to see how lenders justify these fee increases to the FSA next month,' she says.

Andrew Montlake, partner at mortgage broker Cobalt Capital, is also unconvinced: 'A variable exit fee undermines the concept of transparency and is almost certainly disproportionate to any increases in administration costs incurred by the lender.'

Borrowers whose exit fees have escalated can complain to the Financial Ombudsman Service, but should complain to their lender first. Those who have already tackled their lender about exit fees have seen some success. 'Customers who have come to us over the past two years surprised by the size of an exit fee and have then queried this with their lender have found their lenders supportive,' says Cuming. 'They have either waived the fee or, more usually, asked them to pay the amount that was stated when they took the mortgage out. This proves that people shouldn't be lethargic about this and that they do have a voice.'

Emma Parker of the FOS says: 'A firm has eight weeks to resolve a complaint from a consumer, and because the amounts being disputed aren't that big as far as the firm is concerned, they may decide it's not worth the time it takes to argue over it.' 'Each firm also gets charged £360 when a case is brought to us, regardless of the outcome - higher than the disputed fees in most cases.'

The FOS has ruled in favour of borrowers where it feels the fee does not reflect the work done or if it has risen since the mortgage was taken out.

Counting the cost of changing lender

When is an exit fee not an exit fee? When it is a mortgage redemption statement fee, it seems. Cash has learnt that some customers who have their mortgage with the West Bromwich building society have mistakenly been charged £150 a time when they have requested more than one mortgage redemption statement.

The statement tells borrowers how much they owe in capital, interest and any charges to pay off their loan at a chosen date. Borrowers paying off a loan when they move house may ask their lender for a redemption statement as much as three times, so a typical borrower could end up paying £450 with the West Bromwich. It also has a 'mortgage sealing fee' of £50.

However, the West Bromwich promises to refund customers who have paid, or are asked to pay, more than £150.

Lenders such as Bristol & West, Cheltenham & Gloucester, Halifax, NatWest and Northern Rock issue a redemption statement for free while the Yorkshire building society charges £25 after the first statement, according to moneysupermarket.com. However, these lenders all charge exit fees instead.