Mortgage exit administration fees (MEAFs)
last updated November 2007
A MEAF is a charge by a mortgage lender for administrative work associated with releasing a mortgage once all the capital has been repaid, either at the end of the original mortgage term or where the borrower pays off the mortgage early.
It should be distinguished from an early repayment charge, which a mortgage borrower may have to pay if the mortgage is paid off or moved to another lender within a specified time, for instance, after taking out a special interest-rate deal – typically a fixed or discounted rate for a set period.
Following a significant increase in the MEAFs charged by some mortgage lenders over the past few years, the ombudsman service began to receive an increasing number of complaints from mortgage borrowers about the amounts they were being asked to pay.
The FSA had also identified similar concerns. Having discussed the matter, the FSA and the ombudsman service agreed that MEAFs raised an issue with wider implications and should be considered under this procedure.
The affected mortgages largely predate the introduction of mortgage regulation, but the FSA has relevant powers under the Unfair Terms in Consumer Contracts Regulations (the Regulations) which require firms to set terms in consumer contracts that are fair.
Generally, the position of an individual consumer who has complained will depend on the terms of the mortgage contract between the borrower and the lender:
- Did the original contract allow the lender to charge a MEAF? Did the charging provision comply with the Regulations?
- If so, was the original MEAF reasonably and appropriately calculated? Typically, did it reflect the actual costs incurred by the lender?
- If the MEAF had been increased since the mortgage contract was entered into, did the mortgage contract allow such an increase? Did the provision for increases comply with the Regulations?
- If so, was the increase reasonably and appropriately calculated? Typically, did it reflect an increase in the actual costs incurred by the lender?
The FSA issued an interim briefing note on the work it had carried out on 15 June 2006. It discussed with mortgage lenders what they need to do when considering varying these fees to ensure they do so in a way that is fair for consumers. The FSA issued a Statement of Good Practice on 26 January 2007. The Regulations require MEAF terms to be fair and the Statement of Good Practice represents the FSA's view of the standards required by the Regulations.
The FSA's Statement of Good Practice 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.
At the same time, it remained open to consumers to take their complaints to the ombudsman service and for the ombudsman service to continue to deal with the individual cases that were referred to it. Factors the ombudsman service would take into account included the terms of the relevant mortgage contract (as described above) and any guidance issued, or decisions made, by the FSA.
In August 2007, the FSA provided an update following its analysis of the responses of a sample of firms, comprising a significant proportion of the mortgage market, on how they would treat future customers.
In November 2007, the FSA published a follow-up note on its concerns that some firms were still including terms in their mortgage contracts which did not comply with the Statement of Good Practice and so may be unfair. The note set out how the FSA thought firms should address these concerns.