Fees, unfortunately are an all too regular occurrence in the financial services industry. While the charge of £1.50 for taking out your own money has gone from most ‘hole-in-the wall’ cash points, it seems that many unfair fees still exist within the market, and more specifically within the mortgage sector. Despite a drive in recent months by lenders and other financial institutions to highlight their improving customer service skills, and the mantra that ‘the customer is always right’, it would seem that this ethos is being displaced by lenders’ desire to increase profitability, with a recent report indicating that the number of potential penalty fees within the financial sector had increased. While some of these fees are unavoidable, brokers and consumers have expressed disappointment that lenders are able to increase the charge or add new fees to their portfolio with little or no notice.
Recouping the loss
Moneysupermarket.com, in its recent research in to the financial services sector, revealed that potential penalty fees had increased, with most of these within the mortgage market. Despite the Financial Services Authority (FSA) recently clamping down on exit fees, it seems that lenders have managed to side-step this issue by putting new fees in place, recouping the loss from exit fees. Some lenders have simply changed or renamed their exit fees, while others have introduced new terms and charges designed to increase profitability for the multi-million, or billion pound organisations.
The research showed that, despite lender moves to scrap or change exit fee strategies, the number of potential penalty fees had increased from 46 to 51. Mortgages also accounted for the most potential penalty charges of all the financial sectors, with loans accounting for 11 potential penalty fees, credit cards incurring 19 – up from 16 last year, and savings accounts having four penalty charges. Only current accounts saw a reduction in the penalty fees, falling from 32, to 27.
Responding to the findings, Stuart Glendinning, managing director of Moneysupermarket
.com, is urging lenders to show transparency and match the ‘Treating Customers Fairly’ (TCF) approach that the FSA was striving hard to drum into the psyche of advisers. He says: “It is galling that people are facing more penalties than last year, despite the Office of Fair Trading and FSA turning their attention to the issue.
“It is unbelievable that five financial products can be the root of so much penalty pain. With so many default fees and charges in place, even the most astute consumer can fall foul. People deserve financial penalties to be transparent and fair from the outset.”
Broker importance
Because of the potential penalty fees attached to products, Sarah Gwilt, adviser at Essential Money Ltd, says it is essential that potential borrowers turn to an adviser to ensure that they are fully aware of their commitments, and what and how they would be paying for their mortgage. She says: “Any fees can be justified. It is crucial that clients are aware of these charges prior to making a commitment, in the interests of TCF. This is why it is so important for people to use a mortgage intermediary that looks at the true cost of the product and not just the headline rate.”
No bearing on cost
Following the original announcement that the FSA was to examine exit fees and their use within the market, Michael Coogan, director-general at the Council of Mortgage Lenders, welcomes the move, but admits it is unlikely to have any major bearing on the overall cost of a mortgage, due to the level of competition within the sector. He says: “Transparency in fees and charges is unequivocally a good thing in terms of ensuring that consumers understand what they will need to pay at various stages.
“But, in the UK market, where competition is tight and price competition is already fierce, the effect is unlikely to have a dramatic impact on the overall cost of a mortgage.”
While it is clear that lenders are organisations in the business of making money, it is also evident that practices must continue to evolve and improve if they are to benefit the industry and become more transparent in their operations. While the FSA study and subsequent statement on exit fees forced a number of lenders to make changes to their policies, some took this as an opportunity to merely re-jig the wording, changing the title from ‘exit fee’ to something the FSA had not commented on.
Unification
Looking at the broader fee structure apparent within the mortgage market, a system of unified pricing structures would go a long way to clear any confusion, but it is unlikely to happen anytime soon due to market pressures and the niches within the wider financial sector. While price caps have been introduced for credit card penalty fees, this practice will undoubtedly face huge obstacles if it were suggested for the mortgage sector.
Instead the industry should work together to create a more transparent, more cohesive approach to ensure borrowers, and brokers, are aware of the costs and what they represent.
