Mortgage Exit Fee Deadline Passes

Mortgage Lenders to reduce mortgage exit fees

In a victory for consumers, the Financial Services Authority's deadline set for mortgage lenders to reduce mortgage exit fees came and went last week, meaning lenders now have to slash fees, stick to the original fee or justify why they should be raised at all.

The FSA warned lenders in January that if they charge more than the exit fee originally agreed with the borrower, they will have to explain their position or face investigation. The new rules apply equally to people leaving their mortgage now or those who have been charged increased mortgage exit fees in the last four years and want to apply for a refund.

In recent years, mortgage lenders have been increasing exit fees originally designed to cover the cost of administration in an attempt to stop people from switching to cheaper mortgages and to supplement profits while maintaining low headline interest rates.

Mortgage exit fees more transparent

The FSA's attempt to make the mortgage exit fees more transparent has been welcomed by most experts, although some are warning that homeowners may face something of a struggle obtaining refunds.

Louise Cuming, head of mortgages at Moneysupermarket, said: "So far all of the decisions announced have been in favour of the consumer, representing a significant change from the earlier lacklustre response to the FSA's call to action. Although providers are now saying the right thing this is not the same as actually delivering on their promises."

Ray Boulger, technical manager at mortgage broker John Charcol, welcomed the deadline but was cynical that the consumer would have it all their own way. Although borrowers who have redeemed a mortgage in the last four years will have a "very strong" case for seeking compensation, he said that many homeowners will have discarded the mortgage documentation and are in a weaker position to make a claim for compensation.

"Around ten million mortgages have been redeemed in the last four years but the number of people who claim compensation will no doubt be largely influenced by the amount of media coverage this topic receives," he stated.

"However, I would estimate that the total compensation payable will be at least 50 million and probably in the region of 100 million."

Some experts believe that the decision will open the floodgates to homeowners wanting refunds worth 190 million and many borrowers are already preparing to make a claim. In fact, more than a million template letters have been downloaded from consumer websites to help people reclaim overdraft charges.

Melanie Bien, of Savills Private Finance, told the Times that lenders are concerned about the scale of claims they are likely to see regarding exit fees, "which may be why borrowers will have to make a claim themselves, rather than wait to be contacted by their former lender".

Mortgage payments rise

Interest rate rises and soaring house prices have added 120 to the monthly mortgage payments of first-time buyers, a new study has shown.

According to Nationwide, recent interest rate hikes added 45 to the monthly outgoings of a first-time buyer last year, while increased property prices added a further 75.

In order to reduce monthly payment, 34 per cent of new buyers now take out a home loan of 26 or more years, despite the prospect of being saddled with debt for many years.

Fionnuala Earley, chief economist at Nationwide, said: "As interest rates have increased to their highest level in over five years, the question of affordability again raises its head.

"House prices alone increased by just over ten per cent in 2006 adding almost 14,000 to the cost of a typical first-time property, but three interest rate rises in six months add considerably more to borrowing costs for this already struggling group."

Miles Shipside, spokesperson for property website Rightmove, has said that many new buyers are taking advantage of the rise in equity in their parents' homes in order to finance a deposit on a house.