It was interesting to note the varied response by lenders in answer to the FSA’s requirement for them to have reviewed the fairness of their exit fees by July 31.
Cheltenham & Gloucester led the way in abandoning this much criticised practice and was soon followed by lenders such as Northern Rock, Standard Life and the mighty HBOS. This was, of course, a much welcomed move by the aforementioned lenders but it seems that not everyone was prepared to make such a bold statement.
Abbey (apologies for picking on it but it was the first in the alphabet) is one such lender which has decided to scrap the fee, yet funnily enough add another fee called something else for the same amount. This can be interpreted in one of two ways. Either it smacks of arrogance and represents a “come and have a go if you think you’re hard enough” attitude or it could be seen as the most honest approach.
Perhaps we can see this as a tacit admission that the fee has more to do with pure profit levels rather than the actual cost of closing down an account, as many of us have always thought, and an honest message sent out that in terms of its pricing model, and to achieve the profit levels it needs, it is going to keep this fee out in the open rather than bury it where no one can really see it. After all, it does seem unlikely that the major lenders are going to give up this additional revenue stream just like that.
Whichever view you take, it is a welcome move that the clearly ill-defined exit fee is facing extinction and we must continue to move towards a world where fees and charges accurately reflect the cost of doing something. Personally, I would like to see all fees rolled into one arrangement fee at the start of the loan. This would make it more transparent and easier for comparison purposes over the life of the loan.
Best-buy tables could then be redefined, with an additional column showing the real cost over the term of the fixed or discounted period in pounds and pence, as it is becoming harder to determine which mortgage is actually the best product to take out. Following the lowest headline rate is not as simple as it seems but many borrowers do not appreciate this.
Cynics will suggest that lenders will not take this route as they are already using high fees to manipulate their position in best-buy tables. Change is on the horizon and it may not be long before a brave lender enjoys the positive PR that comes with a one-fee-for-everything approach.
Andrew Montlake is a partner at Cobalt Capital