Mortgages – Exit administration fees

You may need to pay a mortgage exit administration fee to your lender when you repay your mortgage, including if you switch mortgages for a better deal. Lenders charge the fee for the costs of the administration services involved when you end your mortgage contract with them. The fee can include costs such as deed release fees and changing the registration at the Land Registry.

What did we think was unfair?

We were concerned that some lenders have been significantly increasing these fees recently and we thought that might be unfair. We do not set prices for the products we regulate and firms can vary the amount they charge for services, such as mortgage administration. However, when a firm changes the amount it charges, the Unfair Terms in Consumer Contracts Regulations 1999 require the firm to act fairly.

Why did we think it was unfair?

Customers were being surprised by being charged more when they came to exit their mortgage than they had been told they would pay when they entered it, and these increases might not have reflected a justifiable increase in costs.

What has happened now?

We issued a Statement of Good Practice (the Statement) in January 2007 giving our view on the standards that firms should meet. We consulted the Council of Mortgage Lenders (CML) and some lenders, and issued the Statement with the agreement of the Office of Fair Trading.

In the Statement we split customers into three categories:

• Future customers — customers who take out a mortgage from 1 August 2007.
• Existing customers — customers who have a mortgage which started before 1 August 2007.
• Past customers — customers who have paid a mortgage exit administration fee in the past.

Future customers

We asked lenders to review their mortgage contracts for future customers and decide whether they needed to amend their exit administration fees to meet the principles set out in the Statement. We expected lenders to have made any changes by 31 July 2007.

We contacted a sample of firms to find out the outcome of their review and we found:

• most major lenders have opted either to charge a fee that cannot be varied during the lifetime of the mortgage, or to remove the fee altogether; and
• other lenders will charge a fee that reflects the administrative costs when the customer exits the mortgage. The fee should only vary for valid reasons clearly explained at the outset.

From now on, you should know when you sign up for a mortgage what fee you will pay on exit, or should be given a clear idea of how the fee might be increased fairly. This transparency and fairness will allow you to make an informed decision about which mortgage product is best for you, taking into consideration the interest rate and all the mortgage charges. For more information about other mortgage fees and costs that you should consider when taking out a mortgage see Fees and costs

Existing customers

Lenders had to decide by 28 February 2007 which of the following outcomes to adopt for their existing customers:

• charge no fee;
• charge the original fee;
• charge a revised fee which is equal to or lower than the original fee;
• charge a revised fee which is higher than the original fee; or
• charge the current increased fee.

More than 95% of the industry, including all the major high–street lenders, chose one of the first three options. This means that their existing customers will not be charged any more than the original fee.

Some lenders have adopted one of the last two options — this means their customers will have to pay more than the original fee. We have asked them to explain their position and we are reviewing the information they have given to us. Where firms are unable to justify their position, we will take further regulatory action.

Past customers

We also expect any lender who receives a complaint from a past customer to treat that customer in the same way as it would treat a current customer in the same position. So, for example, if a lender opts to charge its existing customers the original fee, and a past customer in the same situation complains, the lender should refund the difference between the actual fee paid on exit and the fee stated in the original contract.

Top tips about mortgage fees

• If you think you have been charged a higher exit fee than the fee stated in your mortgage contract, contact the lender to find out if you are eligible for a refund of the difference. You may not need the original mortgage documentation to claim. If you give your name and the address of the property, the lender should be able to find your details.
• From now on, you should know when you sign up for a mortgage what exit fee you will pay, or should be given a clear idea of how the fee might be increased fairly. This transparency and fairness will allow you to make an informed decision about which mortgage product is best for you.
• Check all the mortgage fees as well as the interest rate when comparing mortgages. Consider what impact the fees will have on the overall cost of what you will borrow.

What next?

Read more about Mortgages

Compare mortgage features and costs at Compare products

Read our guide to Making a complaint

Read more agreements from firms — see Unfair contracts

Read more about our work on Unfair contract terms