Consumers and banks in battle over mortgage exit fees
One of the main bugbears of consumer groups in recent times has been the perception that banks and other lenders are ripping off customers at every given opportunity, a belief that is often grounded in reality. As newspapers continue to report of small battles taking place between consumers and banks over the issue of overdraft penalties and other punitive fees, there is evidence to suggest that mortgage exit fees could be the next campaign of war.
Mortgage exit fees, which used to be a way of covering the cost of paperwork, have grown into an industry, with lenders charging anywhere between £150 and £500. What's worse is that they are applied when a mortgage has run its course, not just when the homeowner decides to remortgage with a cheaper provider. Another irritant can be the fact that exit fees can be raised after the mortgage has been taken out, essentially making the mortgage more expensive.
It means that homeowners who took out a mortgage some years ago and now want to remortgage are being whacked by exorbitant costs, undoubtedly designed to stop people refinancing their loan. Some pundits have described the habit of switching deals on a frequent basis as 'rate-tarting', which apart from being an unfortunate turn of phrase, seems to suggest that finding a better rate with another provider is disloyal or even abnormal. This begs the question, why would anyone want to stay loyal these days when banks seem intent on attracting new customers at the expense of old ones?
I recently read an article in the Yorkshire Post by Jim Spowart, who was the creator of Intelligent Finance at Standard Life Bank, who reckons that the big banks don't place any value on mutual loyalty anymore. Interestingly, he expressed his belief that there are two types of borrower in Britain now – those who are 'rate tarts' and regularly shop around for new mortgage deal and those who "are sitting on their hands, facing stiffer fees, extra charges and higher interest rates" out of a misplaced sense of loyalty.
The upshot is that banks no longer care so neither should customers. And although this is likely to lead to a more comprehensive breakdown in industry-consumer relations, it only seems right that homeowners exercise a bit of common sense and follow the money. This is likely to happen anyway as most experts believe one or two interest rate hikes are still on the cards for this year. At the same time, there is no shortage of personal finance websites urging homeowners to seek out the best mortgage deals before they get pulled by the lenders. Of course, remortgaging is sometimes about consolidating credit card debts onto a mortgage at a low rate of interest – something that is likely to grow in popularity as more and more people struggle with unsecured credit repayments.
Returning to the problem of mortgage exit fees, the Financial Services Authority (FSA) has been looking into the issue since 2005 and it has taken until now for mortgage lenders to do anything about it. Basically, the FSA has said that lenders have to reduce charges now and justify why fees should be raised at all – and since the new rules apply historically, households are now in a position to avenge their grievances. In fact, they have inundated personal finance website Moneysavingexpert with inquires of how to download templates of fee refund letters. A minority of lending institutions have already slashed their fees, which means they are now in line with the FSA's requirements. All of which is good news for ordinary folk with bills to pay.
While it looks like consumers will win the battle over exit fees and recoup some of their money, they might not win the war, as mortgage firms are bound to offset losses somewhere else. Nonetheless, no one expects banks or consumers to slink away from conflict and it could well be that mortgages with high arrangement fees and artificially low introductory interest rates – described by the Liberal Democrats last week as a "trick" – will be the arena for some future fight.
Author: Richard Mather
Mortgage exit fees, which used to be a way of covering the cost of paperwork, have grown into an industry, with lenders charging anywhere between £150 and £500. What's worse is that they are applied when a mortgage has run its course, not just when the homeowner decides to remortgage with a cheaper provider. Another irritant can be the fact that exit fees can be raised after the mortgage has been taken out, essentially making the mortgage more expensive.
It means that homeowners who took out a mortgage some years ago and now want to remortgage are being whacked by exorbitant costs, undoubtedly designed to stop people refinancing their loan. Some pundits have described the habit of switching deals on a frequent basis as 'rate-tarting', which apart from being an unfortunate turn of phrase, seems to suggest that finding a better rate with another provider is disloyal or even abnormal. This begs the question, why would anyone want to stay loyal these days when banks seem intent on attracting new customers at the expense of old ones?
I recently read an article in the Yorkshire Post by Jim Spowart, who was the creator of Intelligent Finance at Standard Life Bank, who reckons that the big banks don't place any value on mutual loyalty anymore. Interestingly, he expressed his belief that there are two types of borrower in Britain now – those who are 'rate tarts' and regularly shop around for new mortgage deal and those who "are sitting on their hands, facing stiffer fees, extra charges and higher interest rates" out of a misplaced sense of loyalty.
The upshot is that banks no longer care so neither should customers. And although this is likely to lead to a more comprehensive breakdown in industry-consumer relations, it only seems right that homeowners exercise a bit of common sense and follow the money. This is likely to happen anyway as most experts believe one or two interest rate hikes are still on the cards for this year. At the same time, there is no shortage of personal finance websites urging homeowners to seek out the best mortgage deals before they get pulled by the lenders. Of course, remortgaging is sometimes about consolidating credit card debts onto a mortgage at a low rate of interest – something that is likely to grow in popularity as more and more people struggle with unsecured credit repayments.
Returning to the problem of mortgage exit fees, the Financial Services Authority (FSA) has been looking into the issue since 2005 and it has taken until now for mortgage lenders to do anything about it. Basically, the FSA has said that lenders have to reduce charges now and justify why fees should be raised at all – and since the new rules apply historically, households are now in a position to avenge their grievances. In fact, they have inundated personal finance website Moneysavingexpert with inquires of how to download templates of fee refund letters. A minority of lending institutions have already slashed their fees, which means they are now in line with the FSA's requirements. All of which is good news for ordinary folk with bills to pay.
While it looks like consumers will win the battle over exit fees and recoup some of their money, they might not win the war, as mortgage firms are bound to offset losses somewhere else. Nonetheless, no one expects banks or consumers to slink away from conflict and it could well be that mortgages with high arrangement fees and artificially low introductory interest rates – described by the Liberal Democrats last week as a "trick" – will be the arena for some future fight.
Author: Richard Mather
1 comment:
This was a really useful article, as I am about to take out a mortgage and need all the advice I can find.
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