The Fool's Guide To Reclaiming Mortgage Fees

Your old lender may have unlawfully bumped up your exit charges when you last switched mortgage. In a series of articles we'll explain how to recover these fees plus early repayment charges too.

This guide to claiming mortgage exit fees has been on the cards for years, because The Fool has been saying for a long time that they are unreasonably high.

I regret that I've been putting off this campaign though. Ever since I started my campaign against unfair bank charges last May, I have been blasted with emails about it, so I just couldn't find the energy to face a second whirlwind. However, I've been training to climb a mountain recently, so these days I have plenty of energy to face another onslaught of emails!

To ease my burden, I'm going to take this piecemeal. I shall write several articles over the next few weeks, giving you information in manageable chunks. I shall set up a page that links all the articles together in a guide. This series will also consider whether early redemption charges are unlawful. So keep an eye out for it!

What are mortgage exit fees and what's my beef with them?

Whenever you switch mortgages, you have to pay a mortgage exit fee: an administrative charge which, these days, is £150 to £300. The first problem with this is that the administration costs for shutting down a mortgage are nothing like this high. The second problem is that the charges are roughly four or five times higher than they were ten years ago. (See Mortgage Exit Fees Under Fire).

Usually, when you take out a mortgage, the mortgage company will tell you, perhaps in supporting documentation, what its current administrative charge is for exiting the mortgage. Last month, The Financial Services Authority (FSA) told mortgage companies that it is likely to investigate them if they don't reduce their charges to the same level that they were when you took out the mortgage.

Therefore, if the fee was £50, the FSA will expect the mortgage company to charge £50 or less. The FSA has given lenders until the end of February to decide what they will charge in future.

The FSA also said that it expects lenders to treat past customers in the same way that they treat current ones. This means if you had a mortgage for ten years and you were recently charged £200 to exit, but the lender now decides (thanks to the FSA) to charge current customers £50, then the FSA would expect you to be treated in the same way.

Unfortunately, past customers won't be refunded automatically; you have to contact your mortgage lender and ask for your money back.

Even before the FSA published its January statement, a handful of complaints had already resulted in borrowers successfully reclaiming some of their fees back. Some claimants have even managed to reclaim more than the difference between the original amount and the amount that was later charged.

In other words, if they were charged, say, £200, but the mortgage company originally intimated it would be £50, some claimants have managed to get back £175. This means that in the end they were charged just £25! This seems like a much fairer reflection of the administrative costs involved.

Why are these charges unlawful?

From my interpretation of consumer law, these charges are unlawfully high for the same reasons that bank charges are. The term is an unfair term, because it charges more than the administration costs to close up the mortgage (although no doubt mortgage lenders would argue that this is not true). As mortgage contracts are standard and pre-written, the clause is covered by the Unfair Terms in Consumer Contracts Regulations, same as bank charges.

Consider that if the mortgage companies were in the right they would be clambering over each other to proclaim their innocence. Even the banks continue to deny that their charges for overdrafts and credit cards are unlawful, despite the fact they've refunded millions of pounds to tens of thousands of claimants.

Mortgage companies aren't even trying to defend themselves. If they truly believed they were right, they
would stop the inevitable snowball of claims from forming by letting a case get to court. Yet the evidence shows that mortgage companies have just been paying out whenever enough pressure has been applied.

The FSA vs. me

The FSA's position is likely to cause confusion to claimants, much like the Office of Fair Trading has done with its ruling on credit card charges. (See Reclaim Even More Bank And Card Charges.) The FSA has decided that it will not investigate if mortgage companies agree to charge no more than the original fee that was quoted when the mortgage was taken out.

By doing this, The FSA is simply keeping within its remit to secure an appropriate degree of protection for consumers, and to maintain market confidence. It is not stating that this is a fair fee under current consumer law. It's not for the FSA to decide that; ultimately, only the courts can. We shouldn't, therefore, rely on the results of the FSA's investigation.

How much can you claim?

So what can you reclaim? All of it? The difference between what you paid and what they quoted originally? Or all of it apart from, say, £25, as a few people have done? I firmly believe the latter is true.

A trusted friend of mine, a lawyer, is making a claim for the whole lot, and hopes to make a full recovery, or at least a recovery which leaves a much smaller fee that reflects the true administrative costs. (I'll keep you updated on that claim.)

The problem is, we still don't have any court precedent, and we've had far fewer claims for exit fees than we have for bank charges. However, with the FSA's backing I am confident that we'll all be able to get at least some of our money back. Also, I expect that claims will begin to snowball very quickly, so I'll be able to give you more details over the next few weeks about what you can expect to recover.

How far back can you claim?

As with bank charges, you can claim an exit fee that you paid up to six years ago.

In the next part of this guide, I'll give you more information on the successes so far and outline the steps you'll need to take to recover your fees.

Next article: How To Begin Your Claim For Mortgage Exit Fees.

> Please answer our poll! Anyone who has already tried (I mean really tried!) to recover their exit fees, please tell us how you did in this poll. As the weeks go by and more people claim, it'll give us a better indication of our chances of success. Feel free to 'reply' to the poll with comments about your experiences too.

> Got a question? Ask other Fools on our Reclaim Unfair Mortgage Fees discussion board.

> Useful links. Fools with an eye for technical detail may want to do some of their own research. Read these:
FSA statement on mortgage exit administration fee increases
The Unfair Terms in Consumer Contracts Regulations 1999
Unfair (Contract) Terms Act 1977
Supply of Goods and Services Act 1982

> Read The Complete Guide To Reclaiming Mortgage Fees.
> Compare mortgages through The Fool!