Darren Cook, head of mortgages at Moneyfacts.co.uk, commented: “This is good news for the consumer, and it certainly wasn’t right that you were expected to sign up to agree to pay an unknown fee at a future date.
“Fees have increased sharply over the last couple of years, at a rate much higher than inflation, so we welcome the move by the FSA to introduce greater transparency in this area.
“With lenders using exit fees as a means to deter customers switching to better mortgage deals, it is encouraging to see the regulator acknowledging the problem and dealing with it in an effective manner.
“Most consumers are agreeable to paying fees if they are able to see a return, for example by way of a lower rate, but exit fees have offered no tangible benefit to the consumer and have often been tucked away within the small print of the application, leaving many consumers completely oblivious to their future obligation.
“Even worse still, exit fees have effectively allowed the banks to ‘print their own money’.
"Some lenders had already reacted to unfavourable media comment surrounding the variable nature of exit fees. For example, Alliance & Leicester and Northern Rock already agree that the customer will pay an exit fee at the level it was when the mortgage agreement was originally signed. Other lenders such as the One Account will only charge an exit fee during the first five years of a mortgage, but the FSA intervention will add some much needed transparency and make matters simpler and fairer for consumers.
"Some lenders have been quick off the mark in reacting to this FSA statement with Portman Building Society & The Mortgage Works reducing their exit fees from £199 to £145 with effect from Monday 29 January."
Louise Cuming, head of mortgages at moneysupermarket.com, said: “Since the FSA called for more transparency on exit fees back in June, lenders have failed to respond. Indeed, the only real movement within the existing market to date has been to increase these charges. The FSA has set lenders a deadline of 28 February to make their exit fee charging structures clear to borrowers.
“However, if lenders opt for the latter two outcomes, thousands of borrowers could still be subjected to unfair treatment when entering into a mortgage contract because the FSA still allows lenders the license to raise the charges without consulting the borrower. Even with all the justification in the world, it still means people can face a nasty surprise when they decide to terminate their mortgage contract.
“Indeed, despite the fact lenders have been expecting this guidance from the FSA since its June announcement they have still managed to increase fees during this time, with Standard Life and Britannia Building Society both culprits. Indeed, in spite of the announcement’s imminence, Britannia has even managed to sneak in an extra rise since December 2006. The Building Society raised it exit fees from £75 to £110 in January 2007. Hopefully lenders will now fall into line and either choose to charge no exit fees or charge the original exit fee – effectively they are being forced to ‘guarantee’ their exit fees which is welcome news.
“However, the fourth and final outcome proposed by the FSA, which allows lenders to increase current fee levels, is ludicrous. Deeds are no longer a legal requirement and the majority of the administration involved is now conducted online and therefore the current level of fees – ranging between £90 and £295 – already seems extortionate. I believe all exit fees should be reduced to reflect accurately the cost of the administration work involved.”
David Kuo, head of personal finance at Fool.co.uk, said: “Some mortgage lenders have been taking unsuspecting borrowers for a ride by indiscriminately hiking mortgage exit administration fees (MEAFs). In some instances the hefty hike in charges has been well above the rate of inflation. Consequently, Fool.co.uk welcomes the intervention of the FSA to ensure that borrowers get a fair deal.
“Just as no one in their right mind would visit a sleazy Soho clip-joint, borrowers are expected to do precisely that by signing up to loan agreements without knowing what the final tab will be. The proposals put forward by the FSA will go a long way to ensure that borrowers know what they will pay on exit when their mortgage term ends.
“The FSA’s proposal also provides recourse for past customers who may have been unfairly penalised by high exit fees. Fool.co.uk therefore urges past customers of shameful lenders to pursue claims if they feel they have been treated differently to new customers under the FSA proposal.”
