The City watchdog has warned mortgage lenders that they will have to justify disproportionately high exit fees or cut them.
If you've recently considered switching your mortgage or paying it off, you'll probably have been surprised by unexpected increases in the amount you'd have to pay to do do so.
For the last three or four years lenders have quietly been increasing the 'mortgage redemption penalty' or 'exit fee' in an effort to dissuade customers from searching for better deals elsewhere.
This is a discharge fee which covers the administration charges incurred when you either switch your mortgage provider or pay off your mortgage. It's supposed to cover costs such as changing the registration of the property at the Land Registry as well as handing over any paperwork and information to the new mortgage lender or to the customer who's finished paying off their mortgage.
The size of the increases alarmed the Financial Services Authority sufficiently last summer for them to look into it. For example, ten years ago, Abbey charged a mere £50 in exit fees -- now it's £225. Woolwich and Barclays have increased their fees from £50 to £275 while the Alliance & Leicester now charges a whopping £295, up from £90 in the last decade.
The FSA appears to agree that the increases aren't necessarily proportionate to the costs of administering the paperwork connected with ending a mortgage. It has now told lenders that they've got till the end of February to decide what action they're going to take. Any lender continuing to charge what could be considered disproportionate exit fees will have to justify them to the FSA if customers complain.
Essentially the FSA has made it clear that lenders should only charge the original exit fee that was notified to the customer when they signed the original contract, took out a further advance, or changed their mortgage product.
The great news for past customers who feel they were 'overcharged' when they left their lender is that they'll be allowed to complain about it and demand a refund of the difference between what they paid and the amount they originally signed up for.
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