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Last Updated: Saturday, 24 June 2006, 12:57 GMT 13:57 UK
Some mortgage exit fees 'illegal'
By Paul Lewis
BBC Radio 4's Money Box

Ten pound notes
Some lenders' exit fees have gone up dramatically in recent years
Fees charged by mortgage lenders when customers pay back their loan have been branded potentially illegal and "a scandal" by industry insiders.

The so-called exit fees can be as much as 295 compared to no more than 50 10 years ago.

So customers who took out their mortgage some years ago can be shocked by the cost when they repay it.

One mortgage broker told the BBC the fees are a scandal and should not be more than 50, and a leading lawyer warned the charges could be illegal.

Speaking on BBC Radio 4's Money Box programme, lawyer Adam Samuel explained how the law worked: "It's not illegal if the customer was told that it would go up from 70 to 200 depending on when they redeemed their mortgage.

"What makes it illegal is if the lender can change that figure from 70 to 200 without either obtaining the customer's agreement or without using any objective standard by which to measure that amount."

'Disguised penalty'

Mortgage broker Danny Lovey, who says the charges should be no more than 50, feels uncomfortable explaining them to his customers.

"They are a scandal in my opinion," he told the programme, "People like me are embarrassed and very irritated when lenders put charges up.

"When they move the goalposts in the middle or towards the end of a mortgage deal, you can quite easily come to the conclusion that basically it is just a disguised redemption penalty, rather than having any relevance at all to the amount of work that's undertaken in order to discharge that mortgage.

"They've got customers over a barrel and I just think it's wrong."

The law indicates quite clearly that you should have a very clear statement as to what the charge is for
Michael Coogan, CML

Earlier this month the Financial Services Authority told lenders to examine whether their fees were fair. They have until the end of the month to reply.

But Michael Coogan, director general of their trade body, the Council of Mortgage Lenders, accepts that charges can break the law that says they must be fair.

"If you are closing a mortgage contract, that is a set series of activities which has a certain price and a cost in terms of staff and so on," he said.

"If you are broadening that out to cover other transactions or other aspects of the mortgage relationship you need to explain to your customer what it covers.

"If you are not clear then... the law indicates quite clearly that you should have a very clear statement as to what the charge is for. If you then plan to change it and you do not make clear why you change it, then it would be unfair."

BBC Radio 4's Money Box was broadcast on Saturday, 24 June 2006, and was repeated on Sunday, 25 June, at 2102 BST.

FSA warning on mortgage exit fees
16 Jun 06 |  Business
Mortgages: Changing to a better deal
05 Aug 04 |  Inside Money
Q & A: Moving your mortgage
21 Sep 05 |  Business

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