FSA urges borrowers to claim mortgage exit fee refunds

The Financial Services Authority boasted yesterday that it had cracked the problem of opacity in the mortgage exit-fee market, claiming that the majority of lenders had either scrapped or fixed their exit charges.

The regulator began to put pressure on mortgage lenders in January, when it issued a statement of good practice highlighting that many consumers were being charged higher exit fees than they had expected.

"What we are seeing achieves our principal aim of stopping customers from being surprised by unexpected increases in these fees," said Clive Briault, managing director of the FSA's retail markets division. "Customers will 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 varied fairly. We will continue to monitor closely how firms treat their customers in this area."

Some of the UK's biggest lenders - such as Cheltenham & Gloucester, Royal Bank of Scotland, Northern Rock and HBOS - have dropped their exit fees altogether over the past few months. However, other lenders, such as Abbey and the Bank of Ireland Group, have simply recategorised the fee. Melanie Bien, a director of the independent mortgage broker Savills Private Finance, criticised the regulator for not going further.

"It is outrageous that the FSA has let lenders off the hook for simply calling their exit fee something else," she said. "This exercise was supposed to be about increasing transparency in an effort to treat customers fairly and ensure fees were reasonable and set from the outset... But with three different new names for the mortgage administration exit fee in existence now - 'mortgage account fee', 'core term fee' and 'mortgage administration fee' - the situation is more complicated than ever."

Julia Harris, of money facts.co.uk, the money search engine, added that with banks already under pressure to eliminate their overdraft charges, they were bound to look for other ways to recouplost income.

"With the actual cost of administering the exit of a mortgage deal... substantially lower than the fee charged by the lender, the vast proportion of the exit fee is profit,... the lenders are unlikely to surrender this revenue stream without a fight," she said.