Mortgage Exit Fees To Be Refunded
It has emerged that homeowners could be entitled to refunds which might total £2bn for mortgage exit fees which have been unfairly charged by lenders. Building Societies and Banks are already beginning to make paybacks before a report by the Financial Services Authority (FSA) has been issued.
Although lenders are allowed to make the exit charge, some have been increasing it after contracts have been signed. The FSA says this is unfair.
Institutions began to increase exit fees a few years ago, from an average of around £50 to more like £300. The actual cost of the work to a bank or building society is in the order of £50.
Increases in fees have been used by banks and building societies in response to customers who continually shop around and switch mortgages to get the best deals.
In Britain each year around 2.5million mortgages are redeemed. These are either paid off fully or the borrower wants to switch lender. With those numbers, in the five years since exit fees started to creep up, around 12.5million mortgages could have been redeemed.
Mortgage holders will be able to claim back the difference between their originally quoted exit fee and the amount they were actually charged at redemption. An average figure might be around £160, so the total could reach £2bn in fees to be refunded by mortgage providers. Anyone charged more than stated in the original contract should contact their bank to claima refund.
The FSA has had the charges under investigation and is due to publish its results on 2 August.
Interestingly, some lenders have announced that they are to abolish exit fees for new customers. The first to do so was the Cheltenham & Gloucester, followed by Standard Life Bank, Bristol & West, and the biggest mortgage lender in the UK, the Halifax. Additionally, some lenders have started to refund overcharges.
The FSA has said that it may want to challenge lenders who wish to increase their exit fees in the future. Alliance & Leicester almost trebled its exit fee to £295 by 2004; Northern Rock increased its exit fee by almost £100 to £250 in 2005.
Bank overdraft charges are also in the news again, as HSBC revealed that it had paid out £115million in overdraft refunds in the first six months of 2007. It is said that most people have yet to make a claim so the overall figure is going to be enormous. Analysts now calculate that the figure for overdraft refunds could reach £6bn – well above the original estimate of £2bn-£4bn.
Refunds from banks for overdraft charges and mortgage exit fees could be £180 per adult in the UK.
It remains to be seen how the banks will react as they will undoubtedly – as experience has taught us – look for other ways to recoup their losses. It will almost certainly mean that charges will be imposed for services that were previously free. Indeed, it is likely that the whole concept of free banking will comer under threat.
Tom Smith
24th August 2007
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