No more mortgage exit fees
1 commentChoosing the right mortgage is a difficult and confusing process. Distinguishing between caps and collars, offsets and overpayments, sub-prime and self-cert, discounted and deferred and fixed and flexible provides enough to dazzle and bewilder the average homebuyer. It is no wonder that mortgage lenders are able to surreptitiously add an array of fees onto these mortgages.
Meandering through the mortgage minefield is indeed difficult, but ensuring that you have the right mortgage to meet your needs is important. The majority of UK homeowners fail to re-mortgage, costing themselves £1,000s over the term of their mortgage in additional interest. However, lenders keen not to lose high yielding loans have been increasing the cost of exiting a mortgage.
The role of the FSA
The FSA, the regulatory body for mortgage lenders has published a rather convoluted and long-winded explanation of mortgage exit fees which essentially rests on two fundamentals:
- Mortgage lenders were setting out arrangements for customers and then changing them to increase profits.
- This was unfair.
Furthermore, given the imbalance of power and knowledge between lender and customer, to ask the average homeowner to prove that a lender has acted in an unfair way is preposterous. The end result of this has been that lenders are now allowed to change mortgage exit fees only given a valid reason, and the only ‘valid reason’ is as an increase in costs for the lender to terminate a mortgage.
How have mortgage lenders reacted?
Of course lenders were not keen to give up a valuable source of income. However, HBOS, Cheltenham & Gloucester, Standard Life, Royal Bank of Scotland, Natwest and Northern Rock have all now ‘scrapped’ their fees.
Deputy Editor of the Guardian's Money supplement Hilary Osborne actually states that according to the watchdog more than “95% of the industry, including all the major high street lenders, had opted to either scrap the fee, reduce it or revert to the original fee.”
However, such claims should be taken with a large pinch of salt. Mortgage lenders have a plethora of ways of adding fees on to their mortgages and with mortgages currently becoming increasingly unprofitable are unlikely to give up quite so easily. Rather than an exit fee, lenders are now simply adding on miscellaneous fees at the start of the mortgage or increasing their initial arrangement fees. The sickening thing is that by doing this they actually get your money sooner and are able to earn interest on it.
What to look out for?
When you get a mortgage you should receive a key facts illustration, a legal document provided for the majority of financial contracts that outlines the costs of the product you are buying. Make sure that you look at the rate you are receiving and the cost of any fees. It may well be worth seeking professional advice which will be tailored to your circumstances and help you to pick out the most cost effective deal for you.
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