The Mortgage and Insurance Advisory Services is worried that punitive exit fees are still being charged to borrowers, even though there has been a lot of publicity and campaigns in the press.
When a customer pays off their mortgage in full, for example by switching to a different lender, the lender will charge an exit fee. Exit fees can also be called administration charges, sealing fees, or deed-release fees. They are used to cover the cost of...
The Mortgage and Insurance Advisory Services is worried that punitive exit fees are still being charged to borrowers, even though there has been a lot of publicity and campaigns in the press.
When a customer pays off their mortgage in full, for example by switching to a different lender, the lender will charge an exit fee. Exit fees are also called administration charges, sealing fees, or deeds-release fees. They are used to cover the cost of taking property deeds out of storage, sending them to a lawyer, and making a final account statement. When they sign up, borrowers are told that if they switch lenders, they'll have to pay a fee, but that the size of that fee might change.
In the last few years, lenders' exit fees have gone up sharply, and some of them now cost more than GBP300. Firms have said that these price increases are necessary because of their higher costs and more work, but this seems like a weak reason when you consider that the Land Registry now holds property deeds electronically.
Alistair Good, who is in charge of running MIAS, said: "One client, whose fine went from GBP85 to GBP195, said it was like going into a car park where the prices were clearly posted, but when it came time to pay, they had more than doubled.
He added: "We understand that lenders need to get paid back for the costs they incur when a mortgage is paid off, but borrowers need to know about these costs from the start. If the fee is too high, the client can go somewhere else."
Even though exit fees are a small part of the overall cost of a mortgage, it is unfair to surprise a customer with a charge that can reach GBP300. MIAS would like to see lenders be clear about their exit fees and set them upfront. So, the client is treated fairly, which is what the FSA wants.
Northern Rock is one such band. They charge a fee of GBP250, which is pretty high, but they promise to charge that fee when the client signs up for the mortgage. MIAS would like to see this method used by more lenders.
Roger Milbourn, who is the Director of MIAS, said: "Even though customers don't like them, exit fees are here to stay. But lenders must be more open about these fees if they don't want to be called "back door chargers" and if they want the number of complaints to the Financial Ombudsman Service to go down.
"We don't see a good reason why the exit fee can't be the same for the whole life of a mortgage, so the client knows what the charge is from the start. Under the current system, exit fees can go up by more than 350% by the time a client wants to pay off his or her mortgage. Even though the FSA says they don't regulate prices, this shows that they don't care about how customers are treated."
Since there are no fixed exit fees, it is very important for mortgage brokers to carefully go over closing costs with their clients. The adviser should explain that the borrower may have to pay a penalty if they switch lenders or pay off their mortgage early. This way, the broker and client can compare products fairly.
The Mortgage and Insurance Advisory Service (MIAS Ltd) is a company of independent mortgage advisers that offers a full range of services to clients looking for residential and commercial mortgages and mortgage protection.
Since it was started in 2002, MIAS has become known for giving clients straightforward, unbiased mortgage advice and matching them with some of the best deals on the market. The experienced brokers at MIAS know everything there is to know about the mortgage market. They handle the whole transaction from start to finish, making it as easy and stress-free as possible.
