Exit fees
Many mortgage payers could be due a refund

If you have switched a mortgage deal or paid off your home loan in the past five years, you could be eligible for a refund following the intervention of the Financial Services Authority (FSA). A recent investigation has deemed many of the charges made by banks and building societies for exit fees illegal, meaning that many mortgage payers could be due a refund.

Exit fees are supposed to cover costs such as dealing with the Land Registry and other administrative work undertaken by the lender when a mortgage is redeemed in full, or when the customer switches to a better deal elsewhere.

Over the past five years banks and building societies have been increasing the exit fees charged when borrowers redeem their mortgage. A few years ago the average fee was just £50, with some lenders not charging at all. In more recent times the average fee has risen to around £180 and some lenders charge almost £300.

The FSA investigated exit fees after industry experts claimed that lenders have unfairly increased these fees after the mortgages were taken out. This meant that borrowers were charged a higher fee for exiting the loan than they were told when they applied for it. So homeowners expecting to pay a £50 fee found they were being asked to pay far more when they came to redeem their mortgage.

The FSA has ruled that borrowers are entitled to a refund, and should pay only the exit fee stated in their original mortgage contract. With 2.5m mortgages redeemed every year, it is estimated that the banks may have to pay back around £2bn in refunds.

Anyone who has redeemed a mortgage in the past few years could potentially claim, as most lenders have increased exit fees over this period.

The FSA has also made it clear that these exit fees should reflect the actual cost to the lender. Although some lenders have stopped charging these fees to new borrowers, some have simply given the fee a new name.

If you would like to find out more, please email or contact us for further information.

This article is for your general information and use only and is not intended to address your particular requirements. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without appropriate professional advice after a thorough examination of their particular situation. Your home may be repossessed if you do not keep up repayments on your mortgage.

Article date: 09.07