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Exit makes re-entry

Will Henley reports that after the controversial intervention of the FSA, mortgage exit fees are starting to resurface in a different guise

Mortgage lenders have been on the receiving end of strong criticism in recent months on the subject of mortgage exit fees. Some product providers, including Cheltenham & Gloucester, Standard Life Bank, HBOS, RBS and Northern Rock, have now axed their charges but many advisers remain unimpressed by lenders’ tactics.

The rapid rise in these charges over the past five years have caught many advisers and Paterson Financial Planning managing director Damien Paterson believes lenders have acted in an underhand way.

He says: “I am simply appalled at the way they have handled this. Not one of them thought it would be wise to tell the advisers who sold these plans there would be an increase in exit fees.”

Exit fees used to be fairly standardised and relatively low cost but in a marketplace where interest rates and arrangement fees are squeezed, Hamptons International Mortgages director Jonathan Cornell says borrowers have in effect been offered loss-leader products and exit fees were raised to recoup cash but he says the charges have been “terribly unfair”.

Paterson says the relation-ship between clients and advisers has been damaged. He says: “There was no prior information given to us to inform our clients. This made us look particularly bad and for some firms will have had a detrimental effect on relationships with firsttime customers.”

Lenders claim these charges merely cover admin costs such as deeds release and registration changes at the Land Registry. But advisers are sceptical as registry documents these days are stored electronically.

Bestinvest mortgage adviser Peter O’Donovan says: “There is some admin work involved in discharging a mortgage but the rate being charged is out of proportion to the work that is done.”

Paterson says: “I under-stand there are admin costs involved but not £295 worth.”

The charges are evidence of lenders behaving badly, believes Baronworth Investment Services director Michael Brill. He says: “Arrangement fees and exit fees are getting heavier and heavier. It gets to the point where it is not treating customers fairly.”

The recent FSA probe into exit fees has given lenders the chance to “put their house in order”, believes O’Donovan. He says the FSA has “fired the warning shots across the bows”. He believes the regulator is giving lenders the chance to bring their fees into line and says: “The FSA may just be waiting to see how it all pans out before taking further recourse.”

But some believe the FSA has been weak-willed.

Savills Private Finance director Melanie Bien says: “I am not sure the FSA have really pushed lenders on pricing. It is a competitive marketplace and you cannot have the regulator dictating what prices should be charged but the charges should be fixed so borrowers can compare properly and know what they will pay.”

Nonetheless, the intervention seems to have reaped some initial rewards. In addition to some firms axing their fees, some, such as Coventry, Portman/The Mortgage Works, Skipton, and GE Money, have reduced their charge to below £145. Past customers can now claim reimbursements between the difference they paid and that originally stated in their terms and conditions.

Cornell considers that the climbdown represents something of an admission that they had been acting unfairly. He says: “I do not think they will ever admit they were unfair but we can all read between the lines.”

But Brill says as lenders withdraw high exit fees, they will look to levy payments on arrangement fees or other charges.

He says: “My main concern is they will bring it back under a different name. They do not just throw money away like that. They will recoup their money somehow under a different label.”

This has already started to happen, according to John Charcol senior technical director Ray Boulger. A number of lenders, including, Abbey, Bank of Ireland/Bristol and West, Bradford and Bingley and Yorkshire Building Society, have abolished the exit fee but replaced it with a new fee for an identical amount under a new name.

Boulger says: “Either it no longer refers to the costs of closing the mortgage or, if it does, it is also stated to include something else difficult to measure.”

O’Donovan says: “One or two seem to have changed what they call the fee in an attempt to bypass the FSA and still leave them with the ability to charge what they like when the mortgage is redeemed.”

Paterson says this is part of a strategy to bump up fees without incurring the wrath of the FSA.

He says: “It does not matter what they call it, any fee at the tail end of a mortgage is an exit fee.”

Some analysts are doubtful that these new charges will be sustainable as there is a tidal wave of consumerism related to perceptions of unfair banking practices.

Cornell says: “Once you have had a lender the size of HBOS withdraw its charge, you seriously wonder how much longer these providers will be able to charge exit fees. They are seriously out of kilter.”

Bien says lenders have not acted dishonestly but she says it is a shame that they have simply chosen to rename their fees: “That is a little bit shoddy as there was an opportunity to price downward.”

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