Mortgage Exit Fees successes and failures

Steve_xx

dunstonh wrote: »

Its a good job the lenders published these figures clearly in their charges guide. They also appear in the Key facts illustration (for mortgages arranged in the last few years) and usually appear on the contract offer letter.

The charges booklet may be ignored by consumers but the KFI shows it clearly as does the offer letter.

So, you knew what the charges were when you bought the mortgage but you still chose to buy. The FSA ruling has ensured the companies stick to those charges which is fair and common sense.



No maybe about it. You did. You could have gone to a different lender if you didnt like it.



Doesnt matter what you think. The charge is a reasonable charge for the admin and admin charges dont have the same requirements as penalty charges.



They were told by the FSA what they had to do as the FSA felt the banks were increasing them too much. The FSA has the ability to decide if charges are fair or not on any regualted financial services company.

What you say may well be so. However, that does not in itself make the charges levied for exiting a mortgage early reasonable. Why is it not a rip-off when one company charges nothing for an early termination and another charges £50 and another charges £295?

dunstonh

What's with you guys? Why stick up for banks?

When they do something wrong then fair enough but when they aren't doing something wrong then why not stick up for them?

Why do you think they are refunding bank charges? because they are unfair - they are a penalty and do not reflect their costs.

That has yet to be decided although it is felt that they will be classed as unfair. Which is why the banks refund it. However, a redemption charge on a mortgage does not come under the same laws so its irrelevant to use overdraft charges as a comparison.

However, that does not in itself make the charges levied for exiting a mortgage early reasonable.

It doesnt make them unreasonable either.

Why is it not a rip-off when one company charges nothing for an early termination and another charges £50 and another charges £295?

Companies have different business models. One charging £50 may be cross subsidising from another charge or they factor it into the interest rate. They may have more efficient systems or economy of scale to allow them to do it.

The Govt is in favour of explicit charging with financial services and does not like cross subsidising. If they get their way we will see charges levied more frequently although the amounts will generally be smaller for each thing. Under those changes, some will be worse off, some will be better off.

stokesy01

yes, quite. And if someone can please explain to me how £175 is a fair charge for admin, I would be very interested. Redeeming a mortgage is paperwork and sure most of that is computer generated. Can't see an admin person spending £175 of their time on my mortgage alone. If these sort of fees are fair because they are in black and white initially, why stop at £175? Why not £300 Or £500? Like the bank charges, they ahve been deemed unreasonable so they are being refunded.

How about mortgage application fees? I'd like to see something done about them because they are going through the roof. They are definintely not fair or reasonable but taking advantage of current economic climate and lack of choice for consumers.

dunstonh

Redeeming a mortgage is paperwork

Mostly although it does require some signing off by legally qualified individuals (or the compliance and supervision of which does)

and sure most of that is computer generated.

How much do those computers cost?
How much does the building cost?
How much do the staff cost and other staff that are there to support those staff?
and so on (and the list is much longer).

Whilst the actual button presses may be cheap, the resources that have gone into allow that transaction to be done are not.

Most of these indivdiuals are not on minimum wage.

If these sort of fees are fair because they are in black and white initially, why stop at £175? Why not £300 Or £500? Like the bank charges, they ahve been deemed unreasonable so they are being refunded.

No they have not been told to refund them. They have been told to refund the difference where the FSA feel the increase in a short period was deemed to be unfair in the FSA's eyes. The FSA have no problem with the fee being around £250 as that is a fair level. They werent happy with them starting to go up on a regular basis to what they felt was an unfair level. Hence the ruling they made.

How about mortgage application fees? I'd like to see something done about them because they are going through the roof. They are definintely not fair or reasonable but taking advantage of current economic climate and lack of choice for consumers.

I suggest you look into the economics of how fixed rate mortgages are arranged. You will find that the arrangement fees are fair and reasonable. Especially when you realise that for some lenders, the fee is the only bit of profit they make on the mortgage.

_Andy_

stokesy01 wrote: »

How about mortgage application fees?

OK and then the only choice on the market would be no-fee or low-fee products with huge interest rates. Presumably then you'd be moaning about rates being too high.

MarkyMarkD

What stokesy and Steve_xx are ignoring is that, when you buy a mortgage, you are buying the entire package.

You might have a choice of:

£599 app fee, 5.79% for 2 years, £295 exit fee, no incentives; and
No app fee, 6.59% for 2 years, £95 exit fee, free valuation, free legals.

(Made-up examples, but they get the point across).

It's up to you (if you are capable of using a calculator or spreadsheet) or your financial adviser (if you choose to use one) to calculate the best deal over the entire contract time - or tie-in time, if you intend to move on after the 2 years - taking into account all fees at start and finish.

There's no point buying a deal which is the best overall deal, and then complaining about the exit fee. If the overall deal, including the exit fee, was the best deal on the market and you bought it, then the lender has given you a great value mortgage.

If you bought a deal which was not the best value on the market, taking into account the exit fee, then either you or your adviser has c**cked up. But that still doesn't mean that for any reason you shouldn't pay the lender the exit fee you originally signed up to.

It's completely irrelevant (ignoring time value of money) whether a lender structures a product as:

- £599 app fee, 5.79% for 2 years, £295 exit fee; or
- £894 app fee, 5.79% for 2 years, no exit fee.

To claim that the first is a rip-off, and the second is great, displays extraordinary ignorance.

And to buy the first, because it seemed better at the time (just because the app fee is lower) and then to moan about the £295 being unreasonable, is equally stupid.

stokesy01 wrote:

I thought people were on the same side on this website. It would seem not.

Fortunately, no. Whilst there are a lot of people with the irrational belief that everything any corporate entity does is wrong, and that stealing from them (whether by defrauding Tesco or by blackmailing mortgage lenders into refunding fees which are absolutely legally due, by threatening to take them to the FOS) is right, there are some more balanced people who can understand the value of companies and the products they offer to us.

hellohello1

Looking for bit of advice. I have had 5 mortages over the last 15 years. I remortgaged first in September 2003. Would I have been charged the fee at this point? Since then have changed mortgage every 2 years or so. No longer have any details of the mortgages apart from the one I have now. Can I just phone them and request the details? Will they be honest though and tell me if have been charged?

Many thanks for any advice given.

NeilB

dunstonh wrote: »

I suggest you look into the economics of how fixed rate mortgages are arranged. You will find that the arrangement fees are fair and reasonable. Especially when you realise that for some lenders, the fee is the only bit of profit they make on the mortgage.

Eh?! You mean there are mortgages out there at 0%?!? Or dont they make money from the interest??

lol Im sure if that was the case and they only made money on the arrangement/exit fee's, they wouldnt be bothering!!

PS regarding 'reasonable fees' - you may think "well that's what the contract says so tough, poke up with it", but A&L and others obviously think there's something in it being unreasonable otherwise they wouldnt have refunded Steve_xx and others?

melvis

NeilB wrote: »

Eh?! You mean there are mortgages out there at 0%?!? Or dont they make money from the interest??

If they are borrowing money (i.e people's savings) and paying interest on those savings of 6.49% and earning 6.49% back on a fixed rate mortgage, then they are making no money except for the fee.

dunstonh

NeilB wrote: »

Eh?! You mean there are mortgages out there at 0%?!? Or dont they make money from the interest??

lol Im sure if that was the case and they only made money on the arrangement/exit fee's, they wouldnt be bothering!!

PS regarding 'reasonable fees' - you may think "well that's what the contract says so tough, poke up with it", but A&L and others obviously think there's something in it being unreasonable otherwise they wouldnt have refunded Steve_xx and others?

Melvis already covered it but you have fallen for the classic error. That the interest you pay is where the profit is. It is on standard variable rate. However, only at the difference between what they pay savers. This is known as the net interest charge and is historically around the 1.5% mark. However, it has fallen in recent times to 0.5-1%.

Fixed rate mortgages typically requires investors to give money to a bank to lend out at a defined rate. The bank has to pay those investors and has to pay them a rate to encourage them to place the money with them. They then need to lend it to you at a rate that is attractive.

It used to be the case that there was a small arrangement fee and a bit of margin put into the rate paid. However, with so many people looking at interest rate and not true cost over the term of the deal, lenders started offering fixed rates with no margin in the fixed rate. This allowed them to move up the tables. However, they had to transfer the profit to the arrangement fee and thats why you see some deals with higher fees.

but A&L and others obviously think there's something in it being unreasonable otherwise they wouldnt have refunded Steve_xx and others?

The reason is that it costs more to refuse people that blackmail them. A complaint to the FOS now costs the lender £450 whether the FOS agrees with you or not. So, the lender is given a choice of refusing to refund another £100 or so or face a £450 charge by the FOS and waste more money in staff and time. The FOS would side with the bank as it is working in accordance with the FSA rules but the lender would be out of pocket.