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Dirty deeds?

Mortgage regulation, as we are happily told by the FSA, has helped to make charges and fees clear to consumers and started a golden era for treating customers fairly.

That is until a wily broker pointed out the arbitrary manner in which deeds release fees are imposed.

The Mortgage Practitioner sole trader Danny Lovey says lenders are literary ripping off customers and fees are being manipulated. Gone are the days when a lender would charge a simple one-off fee of 50-75.

Mortgage Route, an independent mortgage firm, exp-lains that the charge – also known as a deeds release fee, closing administration fee or discharge fee – is a fee that a lender charges for the admin involved in releasing the deeds of the mortgage property and returning them to the owner or solicitor. This is usually when the mortgage has been repaid or when a client is remortgaging.

Alliance & Leicester rec-ently raised its deeds release fee from 195 to 295 for customers to switch mortgage.

The Council of Mortgage Lenders says remortgaging accounted for 43 per cent of total loans for house purchases last year, accounting for 12.45bn so it is not unfair to say that some lenders can stand to make quite a bit of money from deeds’ release fees.

Mortgage intermediaries and lenders alike say this year will be the year for remortgaging, with the predicted rise in interest rates and as fixedrate periods come to an end.

Until recently, Mortgage Route was pitching the average charge on its website at around 100. The FSA website says the fee is typically between 75 and 200.

Mortgage Talk mortgage adviser Jonathan Smyth says: ” Fees have been going up over the past year or so. The fee is contained within the key facts illustration. Make sure you point it out to the client so they do not get any surprises when they remortgage.”

Lovey says: “The trend has been for lenders to increase the fees and they are being applied irrespective of when customers took out their mortgage. This way, they have consumers over a barrel if they want to change their mortgage because, taken to its extreme, they can charge what they like.”

Cheltenham & Gloucester’s closing admin fee charge is 225. Press officer Sue Knight says the charge covers all the various aspects and the admin costs involved with closing a mortgage account.

She says: “When considering the costs and charges associated with a mortgage, there are two elements we consider – the mortgage rate itself and what we charge for certain aspects of work we might have to carry out during the life of the mortgage. In setting rates and charges, we look at both elements together and how they might contribute to the cost and competitiveness of our overall mortgage service.”

Nationwide will be introducing an exit penalty of 90 for the first time on May 1. It says most of the competition charge such a penalty.

Press officer Joe Wiggins says: “This charge covers the admin costs. More and more people are remortgaging, partly to do with the efforts of lenders and the press encouraging people to look around and get good deals. The charge covers the admin costs. We believe that, with the situation at the moment, the 90 adequately covers the costs involved.”

Lovey dismisses Nationwide’s response as “a game of follow my leader”.

It has been argued that the 295 charged by A&L is significantly disproportionate for the costs involved. Mortgage director Stephen Leonard says: “We believe the redemption admin charge reflects the pro-cesses and costs involved when closing a mortgage account and transferring all necessary documentation as quickly and efficiently as possible.”

Mortgage Intelligence managing director Sally Laker says: “In a regulated world, it is surprising that there is not a standard fee.”

The FSA’s mortgage conduct of business states: “A firm must ensure that any regul-ated mortgage contract that it enters into does not impose, and cannot be used to impose, excessive charges upon a customer.” It also warns that charges must not be excessive and that firms should consider its charges compared with those for similar products or services on the market.

Mortgage platform Trigold says the least expensive charge comes from West Bromwich Building Society at 70 followed by Skipton, Derbyshire and Norwich & Peterborough building societies at 75.

Lovey says: “The deeds rel-ease fee was generally a nominal 50 fee or so for administration in a lender’s tariff to which nobody had any particular objection. But now it has become a way of lenders imp-osing an additional redemption penalty by the back door and the FSA should use its powers to stop this abuse.”

FSA spokesman Robin Gordon-Walker stresses that the regulator is not an economic or price regulator and the FSA has no specific plans to look at deeds release fees. But he says: “When things like this happen, by definition, it brings it to our attention”.

Lovey has already gone to the FSA on two occasions but did not get a response. He says more intermediaries need to approach the FSA. For now, Lovey seems to be a lone voice fighting against what he sees as an unfair and indiscriminate charge.

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