Borrowers who paid extortionate mortgage exit fees when they switched lender could be in line for refunds after a crackdown by the chief financial watchdog.
Millions of customers could receive up to £200 each after the Financial Services Authority ordered lenders that charge high exit fees to cut them.
The decision follows a campaign by This is Money and our sister title Financial Mail on Sunday to name and shame lenders imposing unfair charges.
Lenders have been imposing fees of up to £295 on customers who switch their mortgage to a better deal, even though the real cost of administration is as low as £50.
To add to the problem, borrowers were often not told about the fees when they signed up to the mortgage, or the fee was increased after they first took out the mortgage.
Now the FSA has said lenders that plan to continue charging high fees will have to justify their actions. It has given lenders until the end of February to decide whether to charge no exit fee, charge the original fee that the customer signed up to, or charge a lower fee than they currently enforce.
The FSA added that the new rules also applies to past customers, so those who have already paid the charge should be entitled to a refund.
Clive Briault, FSA managing director of retail markets, said: 'We expect that these measures, agreed with the Council of Mortgage Lenders, will stop borrowers from being surprised by unexpected increases in these fees.
'People will now know when they sign up for a mortgage what fee they will pay on exit, or should be given a clear idea of how the fee might be fairly increased.'
Alliance & Leicester set the high-fees trend by hiking its exit charge throughout 2003 and 2004. By the end of 2004 it had almost trebled its fee to £295. Other guilty lenders included Halifax, which raised fees from £85 to £125, Abbey, £125 to £225 and Cheltenham & Gloucester, £45 to £225. Today A&L confirmed that it will pay refunds to former customers.
An A&L spokeswoman said: 'Last May A&L announced that we would fix the mortgage admin fee going forward for all new borrowers at the level it was when they first took out their mortgage. This has provided certainty to all new customers and their advisers.
'We have now decided to apply this policy to previous customers – so that A&L customers who redeem their mortgages will only pay the original redemption fee and will not face any increase on that level in future. We think this is both fair and clear – and provides all our mortgage customers with certainty.'
www.MortgageShop.com the home of transparent, fair mortgage information
