I’m sure we all had a time at school when we’d managed to sneak an extension to an essay or project deadline that we just didn’t want to do. You thought it was one of those things that you could keep putting off because you detested the subject matter, but knowing you had the revised submission date looming, you had to cobble something together last minute in the vain hope of scrapping through.
The lender equivalent of this childhood conundrum is fast approaching as the deadline set by the Financial Services Authority (FSA) to outline policy on mortgage exit administration fees (MEAFs) is coming. By 31 July, all lenders will need to state how they are going to act on these charges and if the regulator believes the decision they have taken – based on the four options it published back in January – is a fair one for customers, they will have passed and can, for now, forget about them. However, should what they have concluded be seen to be unnecessarily expensive for customers, the regulator has promised to look further – with potential consequences.
Robin Gordon-Walker, spokesperson for the FSA, says: “Until we know all the responses then we won’t predict the action we’ll take. For those firms who come out having looked at the options and acted accordingly, we will be less likely to consider action. If they take another option, where they reserve the right to charge fees, then they can expect to have to justify that decision.”
Taking time
But with one week to go before the deadline, some lenders have yet to announce what their MEAF plans are. Of the 15 lenders which Mortgage Introducer contacted, eight had yet to make a decision. Of those that had, two, Cheltenham & Gloucester (C&G) and Bristol & West/Bank of Ireland, said that they were scrapping MEAFs altogether. However, the latter is replacing MEAFs with a new charge, called a core term fee, which will be a flat fee of £195 and can be paid at either the beginning or end of the mortgage. C&G hasn’t done so, but admits it has reserved the right to change its fee structure in the future.
A spokesperson for C&G commented: “This is our interpretation of the FSA’s best practice guidelines. We were given until 31 July to say what we would do and this is how we feel is best in accordance with what the FSA has said.”
But isn’t repackaging MEAFs under a new name just calling a shovel a spade? Gordon-Walker comments: “If lenders bring in a replacement fee, under Mortgage Code Of Business rules all charges must be clear on the Key Facts Illustration (KFI) so the customer can see what is being charged and then draw a conclusion. Whatever the fee, they should be charged in a fair way, especially if lenders are reserving the right to increase further down the line.”
Admission of guilt?
Meanwhile, one or two lenders have reduced their fee since January's announcement, such as Portman Building Society. However, as a spokesperson for the company admits, once its merger with Nationwide Building Society is completed, the decision will be out of its hands.
But as Alex Hammond, PR manager at Kensington, asks, surely cutting the fee is an admission of guilt? “We feel we are treating our customers fairly with our fees and we won’t change our policy just because the FSA has said it is looking at the area.”
The other route which a number of lenders have taken is to hold firm in the belief that what they charge is right for the amount of work necessary to redeem the deeds for the customer.
Vicki O’Connell, PR manager at Chelsea Building Society, said: “Our exit fee was reviewed and we will charge as is quoted on the KFI. We are keeping it at that level, which will be around £175, for the moment, but we will continually monitor it. However, this is pretty average with the others in the market.”
A Nationwide spokesperson added: “At the moment we charge a £90 fee. We think that is fair and can be justified to the FSA. We have no plans to scrap exit fees altogether.”
The rhyme behind the reason
However, the question that begs asking is how have lenders decided what they think is fair and who at the end of the day is right? How can Chelsea, which charges a £175 fee for example, justify its fee when Nationwide is charging £90 and C&G has scrapped the charge altogether? Surely the costs to exit a mortgage are relatively standard across the industry?
Alliance & Leicester (A&L), which has been on the receiving end of criticism for charging one of the highest fees in the market, believes a flat fee of £295 has to be compared with the overall cost of the mortgage.
As Ginny Broad, head of corporate communications at A&L, comments: “A lot of the talk has been around varying the fee during the mortgage but our approach is to look at the overall value of the mortgage. We’ve had criticism for having a high fee but the overall value of A&L products is pretty good. The important point is the overall value to the customer, so to go on about a relatively small fee, in comparison to arrangement fees which have been climbing recently, is missing the bigger picture.”
Therefore, with lenders submitting what they believe is the right answer, the regulator now has the job of defining which lenders it thinks are charging its customers in a fair way and which, if any, are not. However, as has been shown, there seems to be no universal declaration and each lender is making a case for a different benchmark. The FSA has some big decisions to make over the next few weeks but despite a deadline of 31 July, it seems it won’t be the last we’ll hear of MEAFs.
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