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Last Updated: Friday, 16 June 2006, 11:47 GMT 12:47 UK
FSA warning on mortgage exit fees
Man signing cheque
Fees are supposed to cover the cost of paperwork
The Financial Services Authority (FSA) has asked mortgage lenders to justify their high mortgage exit fees.

Since last autumn it has been looking at accusations that the fees, called Mortgage Exit Administration Fees (MEAFs), have been raised unfairly.

The FSA says raising the fees can only be justified if they reflect legitimate costs increases and are proportionate.

It has given certain lenders a month in which to explain why they have put their charges up.

The FSA said: "It was not clear that increases in MEAFs were proportionate to any increases in associated mortgage exit costs incurred.

"The FSA has asked some lenders to consider whether their terms might be unfair, and to provide it with evidence of how decisions to increase their MEAFs were taken."

Minor cost?

The charges were once a minor cost of taking out a mortgage.

Fifteen years ago Alliance & Leicester - Mr De Wever's lender - charged an exit fee of 7.50. Today the fee is 295

They are supposed to cover the cost of paperwork such as handing over property deeds, sending them to solicitors or the home owner, and closing the mortgage account.

But nowadays the fees are typically between 200 and 300 and are applied even when a mortgage has expired after running its full course, not just when the home loan is redeemed early or moved to another lender.

The FSA's concern is not the actual charge levied, but that they can be raised sharply after the mortgage has been taken out.

The regulator says that varying such a condition in a legal contract must comply with the law on unfair terms in consumer contracts.

To do so, such clauses must be justified by a valid reason which has been specified in advance, such as a real increase in the lender's administrative costs.

The FSA said: "After examining a number of mortgage contracts, the FSA considered that some were not as clear as they could be in explaining which costs would be charged to the consumer at what time or event in the life of the contract (e.g. default, early repayment or exit)".

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