Mortgage Arrears Fees - Can I Claim Them Back?
Some lenders apply fees to mortgage accounts which are in arrears. The rationale usually given for these fees is that it costs a lender more to administer a mortgage account which is in arrears than one which is being properly managed. Technically these fees are not meant to penalise a borrower for being in arrears. However, they can certainly feel like a penalty from a borrower’s point of view.
Sometimes the fees are added to the total balance outstanding on the mortgage. However, some lenders add these fees straight onto the arrears on the account. This can lead to a downwards spiral where any payment the borrower make towards reducing the arrears is simply swallowed up by the monthly fees.
Judges may take a dim view of mortgage companies who include these fees in the arrears. At a possession hearing the judge might ask a lender’s representative to calculate the arrears figure exclusive of fees. Arguably the right to request a possession order is derived solely from arrears of mortgage instalments and therefore any fees should not be included in this figure. However, until recently there was not much that borrowers could do about these fees. A contract had been signed and somewhere in the terms and conditions the right to add these fees would be set out in black and white.
Unfair Mortgage Arrears FeesIn April 2010 it was announced that the Financial Services Authority (FSA) had fined one of the UK’s largest “secondary” (or sub-prime) mortgage lenders £1.225 million for failings in the way they treated borrowers who were in arrears. In fact the fine would have been £1.75 million but the mortgage lender was entitled to a 30% discount for paying the fine promptly.
The FSA found numerous failings in the way the lender had conducted its mortgage business between January 2007 and the end of October 2008. Amongst the failings highlighted by the FSA was the nature of some of the fees applied to the accounts of borrowers who were in arrears. The FSA said that the charges they found to be unfair were:
- A Failed Direct Debit fee that was continuously applied to accounts no matter how many times the Direct Debit had already been rejected;
- A Cancelled Direct Debit fee which bore no relation to the administrative costs involved.
- An unfairly calculated early repayment charge which included fees and charges in the mortgage balance. This mortgage lender was due to pay back £1.066 million to its customers in respect of fees charged from 1st November 2004. They also agreed to apply 8% interest to the money refunded.
Previously, in October 2009, another large sub-prime company had been fined £2.8 million (£4 million without the early settlement discount) and ordered to re-pay £7.7 million for failings in the way it treated its customers between the end of October 2004 and November 2008. Again the FSA had highlighted fees and charges which had been applied to accounts in arrears but which did not reflect the administrative costs involved.
Will Refunded Fees Reduce My Arrears?In many cases it is likely that any fees being repaid will be used to reduce the total outstanding on the mortgage rather than the arrears balance. However, if the fees were added to the arrears balance in the first place they should be subtracted from there.
The mortgage lender fined in April 2010 has said that, for existing customers, repaid fees will be credited back to the balance outstanding on the mortgage account because the fees were added to the balance – and not the arrears - when levied. The refunds will also be available to people who no longer have a mortgage with that company or even who no longer own the property in question. Those people will be entitled to a cheque payment for the refunded fees and interest.
Does the FSA’s Decision Mean all Mortgage Arrears Charges are Unfair?The short answer is, “No”. The FSA has not said that all fees or charges added to a mortgage account in arrears are unfair. Rather it has highlighted certain specific types of charges which it considers to be unfair because they are disproportionate to the extra costs incurred by the lender. The FSA is in the process of investigating other mortgage companies - therefore more lenders could be fined and ordered to repay unfair fees in the future.
Any mortgage borrower who believes that their mortgage company has added these unfair fees to their account may wish to go ahead and write to their lender asking for the fees to be refunded. There is no need to wait until the FSA orders the lender to do so.