Thanks to an FSA ruling, mortgage customers can now ask their lender to refund a portion of their mortgage exit fees if the amount they had to pay was greater than the fee stated in their original contract. We explain how to make a claim.
What are mortgage exit fees?
Mortgage exit fees (or mortgage exit administration fees – MEAFs) are the fees that lenders charge when a mortgage balance is cleared – either when the debt is paid off or when a customer switches to a new lender.
The fees are supposed to cover the administrative cost of closing a mortgage and are NOT the same as early redemption penalties (the fees lenders charge when a mortgage debt is repaid before the end of the mortgage term).
The name given to these MEAFs varies between lenders, and customers can be charged anywhere between £50 and £300 (though some lenders do not charge them at all).
Why might I be able to reclaim these fees?
Quite simply, over the years lenders have dramatically increased mortgage exit fees in a bid to increase profits. This was particularly the case between 1993 and 1997. However, the increases were in breach of customers' mortgage contracts, which typically set out a specific (and much lower) figure.
So, in 2007, a Financial Services Authority investigation ruled that the increases were unfair and opened the door for mortgage customers charged the higher fees to claim a refund.
If I am eligible, how much can I claim?
It is important to understand that this ruling applied only to MEAFs and not to early redemption penalties. However, anyone eligible to make a claim can expect a refund to total the difference between the fee charged and the fee set out in the mortgage contract.
How do I know if I am eligible?
If you have paid off a mortgage or switched to a new provider in the last few years and paid a MEAF (remember, not all lenders charge exit fees – see below for more detail), you are likely to be eligible for a refund.
I don’t know if I paid a MEAF, or how much I paid, how can I find out?
You can either contact the relevant mortgage lender and ask them. They should be able to provide this information very easily. However, as a rough guide, here is some information on the fees historically charged by some of the biggest mortgage lenders; this should give you a rough idea as to whether you'll be owed anything.
Can I claim interest on any refund I am due?
By all means, yes. However, not all lenders will agree to pay interest. Of course, it is possible to pursue lender for interest, however, since the amount due will be relatively small, the reward may not be worth the time and effort. Those lenders known to pay interest on refunds include Barclays, Cheltenham & Gloucester, Lloyds TSB and Woolwich.
How do I go about claiming a refund?
Thankfully, the process is actually fairly straight forward. Many lenders have set up dedicated telephone lines for former customers seeking a refund of MEAFs. However, some still do require that you contact them by post.
If this is the case, you can use this template letter. If you use this letter, remember to include your address and contact details as well as the relevant mortgage account number.
What if the lender refuses to give me a refund?
This is quite unlikely, since the vast majority of lenders have agreed to refund former customers. However, if you have any difficulty getting a lender to co-operate, you can complain to the Financial Ombudsman (FO), who will contact the lender on your behalf.
