Mortgage Exit Fees successes and failures

EdeG_1968

I read your article with interest. I contacted my previous mortgage provider (The Derbyshire) and asked about the exit fee. They advised I had been overcharged and I would receive a cheque in the next 7-10 days.

Exactly as scheduled, I received a cheque for £70 all for one phone call. OK, not a vast amount but if it's owed to you, have it. Better in your pocket than their's.

Thank you MSE.
:beer:

MarkyMarkD

Thanks, dunstonh, for explaining the blackmailing point so well.

Fortunately, this site is "moneysaving"expert.com and not "blackmailing"expert.com. There is no moral basis for refusing to pay a mortgage exit fee which was clearly stated at the outset and which hasn't been subsequently increased - which, following the FSA ruling, it won't have been.

Repeated posts of "I blackmailed the lender by threatening to take them to the FOS, therefore the fee was wrong/immoral/illegal" are completely incorrect and I shall just ignore them.

To those who think it's right/acceptable/moral to blackmail their lender into refunding them an entirely legal fee, I'd suggest that they consider whether they think it's right/acceptable/moral to walk into Tesco and steal £295 worth of goods. There's no difference at all.

MarkyMarkD

There have been a number of posts which have sought to explain how mortgage funding works; some of them have an element of truth to them but many of them are not entirely accurate.

So the purpose of this post is to set the record straight.

For variable rate mortgages, funding is relatively simple; for fixed rate mortgages, funding is complicated by an extra issue. So, I'll deal with variable rate mortgages first.

Variable rate mortgages

Lenders fund variable rate mortgages either with savers' money, or with wholesale funds. "Wholesale funds" is basically money borrowed from other banks, which may be as straightforward as a loan for a particular period, or via more complex securitisation vehicles. A "securitisation" involves a lender lumping together lots of mortgages, and isolating them within a separate entity (normally a company, but sometimes something else), and then the separate entity borrowing money from investors (including other banks) against the security of the mortgages.

The cost of funding variable rate mortgages can be calculated in various ways. Whilst it might seem fair to claim that for lenders who mainly fund their mortgages from savings balances, the cost is the average rate paid on the savings, that's not really reasonable as the lender could instead lend the money to other banks and make a profit from the savings business, without any (material) risk. So, the fairest rate to assess as the cost of the savings is the amount of interest the lender could get by placing the savings balances on the money markets - which is conveniently very similar to the rate they pay to borrow on the wholesale markets.

So, all in all, the realistic cost of variable rate mortgage funds is the wholesale borrowing rate - which is based on the inter-bank LIBOR rate, plus or minus a margin depending on the market's assessment of the lender's level of risk.

During the last year or so, LIBOR rates have been in the range of 5.75-6.5%, despite bank base rates being around 5%. So, most discounted variable rate or tracker mortgages have been losing the lenders money; the only variable rate products which have been making the lenders money are those priced at their standard variable rates which are typically 7-7.25%.

fixed rate mortgages

Fixed rate mortgages are funded in the same way as variable rate mortgages, and hence they cost the lender the same amount. But because the funds are priced on a variable basis, and the borrower is paying a fixed rate, the lender would have a mis-match which would mean that they were financially stuffed if interest rates increased after the loan started.

Lenders cannot take this level of risk.

So they enter into swap transactions with other institutions (mainly banks) to swap their variable rate cost of funds into a fixed rate cost of funds.

Swaps are priced roughly as an estimate of the average LIBOR over the term of the swap. So it might be that LIBOR is currently 6%, but 2 year swaps are priced at 5.7% because the institutions expect LIBOR to fall.

If a lender sells a fixed rate mortgage at (say) 5.5%, it will simultaneously enter into a swap paying (say) 5.7%. So its margin on the swap and the mortgage is locked in at the difference, here -0.2%.

But it still needs to fund the mortgage - the swap doesn't involve any money moving around apart from the interest rate differential. So that 0.2% is an extra cost on top of the variable funding rate.


I hope this illustrates that lenders aren't making loads of money on mortgages. Particularly in the last year or so, variable funding costs have gone through the roof and lenders are dependent on the fees charged at the start, and end, of the life of a mortgage to make any profit at all.

naomi009

:j WAHEY!!! I have just spent less than ten minutes reading the mortgage exit fees article, spent less than five minutes on the phone and have earned myself £25!!!!! Thats great!!! I have also switched to and from another lender in the past 6yrs and so have been intouch with them but they want me to write a letter first however, I am onto it!!! Thanks a mil moneysaving experts!!!!! £25 is better in my pocket than in theirs!!!

naomi009

My other mortgage lender contract said the fees were £145. This is what I was charged. Do I have a right to reclaim this?

Noz

naomi009 wrote: »

My other mortgage lender contract said the fees were £145. This is what I was charged. Do I have a right to reclaim this?

naomi009, I have answered your query in the other thread.

stokesy01

MarkyMarkD wrote: »

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:

It's up to you (if you are capable of using a calculator or spreadsheet)
.

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.

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.

I think you are an extremely rude person. there is absolutely no need to make personal attacks. If I have a different opinion to you then accept it. By all means disagree with me, but there is no need to make comments such as 'if you are capable of using a calculator', 'stupid' and suggesting I am not balanced.

I can not stand people that think they can be rude to people online because they never have to meet them. keep it civil.

This part of the forum is to report mortgage exit fee successes and failures. So let people do that without attacking them personally.

_Andy_

I fail to see how MarkyMarkD has been 'rude' or 'attacked' anyone, he's merely pointed out things that may have been missed. (And has also taken the time to provide a helpful post on mortgage funding).

MarkyMarkD

Stokesy

You didn't quote all of my post which you are so unhappy about. I actually said that it was up to "you" or your financial adviser to choose the best value product. "You" meant anyone reading the thread, not you specifically.

I wasn't making any assertion about anyone's calculator skills - merely suggesting that those who aren't confident evaluating their best value choice of mortgage themselves ought to use a mortgage adviser who has the appropriate tools and skills.

But I stand by my words that it's stupid to buy a mortgage with a number of different payments (interest and fees) involved, which is a great deal overall, and then to complain about one element of those fees on the grounds that it's too expensive/unreasonable/profitable for the lender. Basically, so what? The overall deal is what you bought and that is the only thing you can meaningfully comment on, not individual elements.

It is just the same as newspaper commentators suggesting that mortgages are a "rip-off" because they have a £5,000 up-front fee, or whatever. Complete claptrap! A £5,000 fee mortgage may be a complete bargain, for someone borrowing a huge amount and who then pays a very low rate of interest. Once again, it's the whole deal that can be compared, not individual elements.

You are quite right that the point of the forum is for people to share their experiences. But there's also space on any discussion forum for people to discuss the rights and wrongs of the experiences people are referring to.

Were someone to post about their "success" in shoplifting from Tesco, I'd not expect them to be surprised if others posted pointing out that shoplifting was wrong. As I've previously stated, stealing £295 from ones mortgage lender, even though one agreed to pay it to them up-front, is no different.

Cheers to Andy for the support.

Steve_xx

MarkyMarkD wrote: »

Were someone to post about their "success" in shoplifting from Tesco, I'd not expect them to be surprised if others posted pointing out that shoplifting was wrong. As I've previously stated, stealing £295 from ones mortgage lender, even though one agreed to pay it to them up-front, is no different

Asking for your money back is not "stealing" due to the fact that the company concerned can refuse to hand it back.

I take your point regarding the pricing of mortgage products and that they can be made up of several elements. I understood that point before you made it. However, where mortgage exit fees are concerned there is a raft of opposition to it by customers. This fact ought to tell the banks that they are getting it wrong somehow and that as such they might like to look at the structure of their charges. The banks have cleverly marketed these products in such a way as the headline repayment rate looks less than it actually is. Many would argue that their modus operandi in this respect is tantamount to deception.