Mortgage exit administration fees (MEAFs): an update

A Statement of Good Practice, issued by the FSA in January, highlighted that consumers were being charged higher exit fees than they had expected.

The Statement aimed to stop existing customers being charged unexpected increases to MEAFs and to provide a basis on which past customers could seek compensation. It also set out the FSA's expectation for how future customers should be treated and that lenders should review their approach to this by the end of July.

The FSA has analysed the responses of a sample of firms, comprising a significant proportion of the mortgage market, on the outcome of their reviews of how to treat future customers. This shows that:

• most major lenders have opted either to charge a fee that cannot be varied during the lifetime of the mortgage, or to remove the MEAF altogether; and
• other lenders will charge a MEAF which reflects the administrative costs when the customer exits the mortgage. The MEAF should only be varied for valid reasons clearly explained at the outset.

Clive Briault, FSA Managing Director, Retail Markets, said:

"What we are seeing achieves our principal aim of stopping customers from being surprised by unexpected increases in these fees. 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."

Key issues for consumers to consider are:

• If you think you have been charged a higher exit fee than the fee stated in your mortgage contract, contact the lender to find out if you are eligible for a refund of the difference. You may not need the original mortgage documentation to claim. If you give your name and the address of the property, the lender should be able to find your details.
• From now on, you should know when you sign up for a mortgage what exit fee you will pay, or should be given a clear idea of how the fee might be varied in the future. This transparency and fairness will allow you to make an informed decision about which mortgage product is best for you.
• Check all the mortgage fees as well as the interest rate when comparing mortgages. Consider what impact the fees will have on the overall cost of borrowing.

The Money Advice Service website contains more useful information about mortgages[1].

Notes to editors

1. Lenders often charge MEAFs when borrowers pay off their mortgage or switch to another lender to cover the staff and other costs involved.
2. More information about the approach taken by lenders in light of the Statement of Good Practice on Mortgage Exit Administration Fees [PDF] is available on the FSA's website. The Statement was issued on 26 January 2007 under the FSA’s powers as a qualifying body under the Unfair Terms in Consumer Contracts Regulations 1999 ("the Regulations").
3. The FSA has powers under the Regulations relating to the fairness of terms in standard form consumer contracts. More information about the FSA’s approach to its use of these powers is set out in Statement of Good Practice on the Fairness of Terms in Consumer Contracts [PDF] published in May 2005.
4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.