Your Mortgage Has A Nasty Sting!
Competition for mortgage borrowers is fierce, so lenders have responded by massively inflating their exit penalties. How much will bailing out cost you?
Would you sign a long-term contract which included a clause that allowed the other party to charge unknown fees whenever it wanted without your agreement?I thought not, and yet millions of homeowners have done just that without realising it! They say that the Devil's in the detail and, when it comes to mortgage contracts, there are some real nasties tucked away in the small print.Take, for example, mortgage exit fees, which homeowners are forced to pay when they switch lender or pay off their loan. When you sign up for a new 25-year mortgage, you'll be acutely aware of any initial or arrangement fees, but exit or settlement penalties will be the last thing on your mind.Alas, most homeowners don't realise that they have unwittingly signed up to a variety of different exit fees, such as:early redemption penalties (which can amount to thousands of pounds if you pull out of a special- or discounted-rate deal);administration charges and exit fees (to compensate your lender for the time involved in redeeming your mortgage);sealing fees and deeds release fees (more charges for transferring the deeds to your property); andthe return of cashback or other incentives, such as free legal or valuation fees, if you switch with a preset timescale.Independent financial researcher Moneyfacts has spotted two strong trends with exit fees: an increase in the number of lenders imposing these or new fees, plus a massive increase in the level of charges. Indeed, as the following table proves, these charges have been increasing far faster than inflation, wages and even house prices themselves!Standard exit fees levied by the UK's leading mortgage lendersLender 199620012006% Increase1996-2006Alliance & Leicester 90150295228Barclays/Woolwich 5095275450Northern Rock75150250233Abbey5085225350Lloyds TSB/Cheltenham & Gloucester3550225543Halifax55125225309NatWest6585225246Royal Bank of Scotland8075225181Bank of Scotland50150195290Bristol & West50100195290Yorkshire Bank 00195N/aNationwide BS 6709034Average5689218293So, top marks and a gold star to the Nationwide BS, the most customer-friendly mortgage lender on the high street, which has increased its fee by only a third (34%), or £23, in the last decade!The largest fee hikes were made by Barclays/Woolwich (up £225 in ten years), Alliance & Leicester (up £205) and Yorkshire Bank (£195). In percentage terms, the worst offenders were Yorkshire Bank (because going from zero to £195 is an infinite increase!), Cheltenham & Gloucester/Lloyds TSB (up 543%), Barclays/Woolwich (450%) and Abbey (350%)However the banks try to dress this up (for example, by arguing that higher compliance costs are making mortgage lending more expensive), these enormous fee hikes are yet another example of outrageous profiteering. This is borne out by the fact that the mutually owned Nationwide BS (which is run for the benefit of its members) managed to keep its increase well below the general rate of inflation (rising prices) for the last ten years!Here's my theory: mortgage lenders are imposing unfair and disproportionate fees on their existing borrowers in order to sweeten deals for new borrowers. By exploiting their loyal customers, they can provide fee-free deals and other incentives to maintain their market share. Also, jacking up their exit fees makes it less attractive for existing customers to jump ship, which effectively slaps financial handcuffs on them!The root of this problem is that exit fees are not fixed in the mortgage agreement, and lenders claim to have complete freedom to increase them at will. However, I believe that this contractual term falls foul of the Unfair Terms in Consumer Contracts legislation, because asking borrowers to pay an unknown amount at some point in the future is blatantly unfair.Indeed, I've helped a number of Fools to pay much-reduced fees or have excessive fees partially refunded. Also, my own mortgage lender backed down in the face of my threat to settle our exit-fee dispute in my local Court. As I asked at the time, What's to stop you hiking my exit fee to a million pounds, thus preventing me from ever redeeming my mortgage? Can't you see that this is absurd, unfair and illegal?So, if your mortgage hits you with a sting in its tail, don't give up without a fight. Explain that you view this massive increase in fees as unfair, and complain to the Financial Ombudsman Service. If you put up a fight, your lender will eventually back down!More: Check out the outstanding offers in our new, improved Mortgage centre!Disclosure:Cliff owns shares in Lloyds TSB and HBOS, parent company of Halifax and Bank of Scotland.