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A fees rip-off ?

Rising exit fees are in danger of bringing the remortgage market into disrepute, according to some brokers who are calling for the FSA to step in and regulate charges.<

Lenders currently stand to make a fair amount of money from exit fees, especially with the rising volumes of remortgage business seen over recent months.

The Mortgage Practitioner sole trader Danny Lovey says the FSA is “licensing the rip-off of the consumer”.

He adds: “The FSA claims it is there to protect the consumer but at the very time it gets called in to protect the consumer, the FSA is found wanting. This discharge fee is a rip-off for the consumer. It is anti- competitive and anybody who is honest in the business knows it.”

Lovey thinks the FSA regulations Mortgages Conduct of Business offers a loophole to lenders to raise discharge fees. According to him, MCOB says lenders may charge fees in line with the market, which means lenders “play follow my leader” – when one lender increases their fees, they all follow suit.

Lovey says this trend has been going on for the past year or so. At present, he says, there is nothing to stop lenders charging what they like so long as they increase their prices gradually and are therefore seen to be in line with the market.

He adds: “Arrangement and booking fees have all gone up as well. The cost of doing a mortgage now is probably twice what it was two years ago or 18 months ago.”

Lovey says there is no justification for the rise in exit fees because the administration costs of deeds release have actually lessened with electronic communications.

It is actually a client-retention tool, he says, and has very little to do with deeds discharge. He says exorbitant exit fees bring the market into disrepute.

“As a trend it has got to be stopped and reversed because it is not healthy for the market,” he adds.

Nationwide media relations manager Steve Blore agrees there are a number of fees and charges that have been brought into the market by lenders as a means of keeping their rates competitive. He says Nationwide has had to increase some fees and bring back a redemption fee simply because the rest of the market has been increasing their fees. But he does not think regulation is the answer.

“I think the more that the media and the more that external commentators comment on the fact that fees are going up, the greater the pressure there will be on lenders not to keep increasing those fees and that will help to regulate the market in itself,” he says.

But Paragon Mortgages managing director John Heron believes exit fees are clearly regulated by general consumer finance law and lenders certainly cannot charge what they like.

He adds: “Generally, your redemption charge structure has to reflect your costs.”

Mortgage Portfolio Services mortgage planner Simon Chalk says lenders are having to charge higher entry and exit fees in order to make a profit.

“The FSA is blindly wrong to say that exit fees are none of its business. It is wrong, wrong, wrong and should regulate that,” he says.

There is nothing to stop lenders charging exit fees of 500, according to Chalk. He is not concerned about the regulation of the entry fee because it is considered by the applicant on purchase.

He adds: “This is where we are going to get complaints as an industry and bad press in the next six months to two years.”

The bigger lenders, says Chalk, would not dare to increase their redemption fee to 400 or 500 but he thinks there is nothing to stop small building societies or smaller banks from putting up their exit fees.

But Lovey thinks this is highly unlikely. “I would say that, if anything, the reverse is true.”

Alliance & Leicester, in Lovey’s opinion, is one of the worst perpetrators of the exit fee, having raised it in August 2004 from 195 to 295.

But Alliance & Leicester press manager Sally Lauder says: “We carried out a review of the work involved and took a decision to increase it at that time, which we felt was appropriate. It is almost over a year ago that we reviewed it. We have no plans to do anything with that fee as far as I am aware.”

Lauder feels it is unfair to look at one fee in isolation. He adds: “When you are looking at a product, you really have to look at the headline rate and all the other fees and charges involved because on this occasion, yes, we are at the higher end of the market but in other fees and charges we are not.”

But Lovey remains defiant: “I think if anybody does not recognise that this trend is going to kill the remortgage market, then they are in denial.”

For its part, the FSA says that companies treating their customers fairly is a major priority for it and MCOB rules do state that charges should not be excessive.

FSA spokesman Robin Gordon Walker says: “We cannot really set prices here as such. We have not got that sort of economic power. I am not sure how much exit fees are creep- ing up. We do not deter- mine that and we do not monitor it.”

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