28th April 2005, 05:45 PM
Beware of Mortgage redemption fees
Recent research by the Moneyfacts mortgage team has highlighted an alarming increase in the number of Mortgage providers who have increased their redemption fees.
In the twelve months to 31 March 2005, 53 providers have upped their redemption penalty, 23 of which had increased by over 100%. Some examples of the higher fees are Alliance & Leicester increasing their fee from £195 to £295, Cheltenham & Gloucester from £100 to £225 and The Royal Bank of Scotland from £75 to £225.
With the mortgage market as competitive as it has ever been and with interest margins being eroded, lenders are increasing these fees to try to recoup some of this lost revenue but also to try to deter customers from switching their mortgage.
The redemption fee, also known as a discharge fee, deeds fee, exit fee or sealing fee, is basically an administration fee you will have to pay when you repay your mortgage or move your mortgage from your existing lender. When these fees are increased, it is important to remember that they don?t just apply to new applicants, but also to the many thousands of existing customers with the lenders concerned.
Northern Rock, who are charging one of the higher fees of £250, have taken a slightly different approach to protect existing customers, by providing a guarantee that their redemption charge will not change from the original figure stated in their mortgage offer.
Darren Cook Head of Mortgages at Moneyfacts comments: ?If you are only looking at keeping your mortgage with the same provider for a couple of years, a £295 exit fee certainly needs to be taken into account when shopping around. With 42 providers having an exit fee of less than £100 and 16 with no fee at all, it is worth weighing up the impact of these lower fees, not just the interest rates?.
2nd May 2005, 09:29 PM
Mortgage exit penalties rise
The cost of moving from one mortgage to another is going up, with rising exit penalties the latest charge to hit consumers.
High St lender Abbey has been notifying its customers that the cost of leaving their mortgage is rising to £225, which is an increase of 25%.
This charge is over and above any penalty levied for leaving a special deal early, and affects all customers.
And Abbey is not alone. Fifty three lenders have put this charge up in the last 12 months, and 23 of those have more than doubled the cost, according to personal finance data publisher Moneyfacts.
Gary Hockey-Morley, Director of Mortgages at Abbey, accepted the increase put it close to the top of the worst-buy table for early repayment charges:
"We are not the most expensive, but it puts us in the pack," he told BBC Radio 4's Money Box programme.
"There are two that are more expensive, there are a few others the same as us, and there are one or two that are less," he said.
Mr Hockey-Morley said the decision was made after a review of administration costs, including deed preparation; redemption statements, and dealing with solicitors' enquiries.
He noted Abbey had not increased the charge for two years, and said the company's costs "in these particular areas" had gone up by 26% in that time.
Michael Coogan, Director General of the Council of Mortgage Lenders, said that due to a slowing market "all lenders are having to look at their fees much more closely now".
And he told the programme: "I think in the past [lenders] may not have been concentrating so much on recovering the fee directly from the customers who are causing the cost. They may have included it in their interest rate."
Mr Coogan said customers could always take a case to the ombudsman if they felt a fee was too high.
"The ombudsman in past cases... has indicated that fees that do not link to the reasonable cost are not upheld, the customer is not forced to pay them," he said.
David Hollingworth of mortgage brokers L&C told the programme that:
"Most people's gripe here is not that there is a fee, but more about the increasing of that fee over the term of the mortgage, so when you are taking a deal out it can be one figure, when you come to actually switch, then you are looking at a very different figure."
Asked if lenders were imposing the charge to discourage people from moving, he replied:
"Yes. People have got much more used to shopping around. Consumers have become much more empowered in recent years.
"Workloads will undoubtedly have increased for lenders, but [the early repayment charge] certainly acts as a deterrent."
2nd May 2005, 09:39 PM
Some comments from BBC subscribers:
While charging for switching is perhaps reasonable, charging when a mortgage has run its term is naughty.
P Stafford Allen, King's Lynn
Yes, my mortgage has shown this escalation. But does it really cost this figure to terminate a mortgage? Can Moneybox use its clout to get a breakdown of these fees?
Howard Fisher, Peterborough
I have just redeemed my mortgage and was asked to pay a £195.00 redemption fee. This charge was not for early redemption of the account but to return the title deeds to me.
I thought the cost was extortionate and requested a breakdown of the charge. Despite several requests the information was not provided.
The fee is exorbitant. It was £95.00 when the mortgage was taken out just five years ago.
From what I can see the charge covers merely the retrieval of deeds from archive storage, secure mailing, and presumably some insurance in case of loss.
Certainly, there was no evident expertise or service provided and nothing to merit a charge of £50.00 let alone £195.
I have already asked the Office of Fair Trading to look into this practice; compare prices charged, the services provided for the money, and the options available to consumers.
Action is needed to break this profiteering.
Ray Seymour, Bedford
I believe it is purely for commercial advantage, to offer lower mortgage rates by subsidising the cost with the closing fee.
This is fine, if the costs are made clear up front.
What is not fine is making a contract on the basis of a £50 closing fee and then hiking it by 350%, which is what has happened in my case.