Future customers (contracts issued from 1 August 2007)
In the Statement we said we expect lenders to decide whether they will be amending their MEAF terms and amounts for future customers in light of the principles contained in the Statement, and if so how. We said we would be less likely to take action against a lender if it had done this and, if applicable, had applied those terms and amounts by 31 July 2007.
To review firms' responses to this timeframe, it would not be proportionate to ask every UK lender for information on their decision. Instead, we took a sample of firms based on market size and those firms where we believed there may be the greatest risk of them not complying with the Statement. We asked these firms to explain to us, ahead of the 31 July timeframe, the outcome of their review of MEAF terms and amounts and whether they will be amending these terms and amounts for future customers, and if so how.
The trends from our sample of firms show that most of the major firms have opted to charge a fee that cannot be varied during the lifetime of the mortgage or to remove the MEAF altogether. Other firms have chosen to keep the fee as a variable cost-reflective administration fee, which they can only change for valid reasons set out in the contract.
Where firms have chosen to charge a fee that cannot be varied, this means the fee will not be increased. So consumers will know when they take out a mortgage what the MEAF will be when they exit it.
Firms which intend to use variation terms in order to be able to vary the MEAF need to ensure they include valid reasons in the contract for the change. This means that consumers should be given a clear idea of how the fee might be varied fairly in the future. We also expect firms to have systems and controls in place to ensure that the fee represents the cost of the lender's administration services and that changes to the fee will be proportionate to changes to the underlying costs. A failure to do so is also likely to be a breach of contract.
As explained above, we do not set prices for the products we regulate. The aim of this work is to address the issue of firms unfairly increasing their MEAFs to the detriment of consumers. Looking forward, consumers will know what their MEAF will be when they exit their mortgage, or should be given a clear idea of how the fee might be varied fairly. This transparency and fairness will allow consumers to make an informed decision about what the best mortgage product is for them, taking into consideration the interest rate and all of the mortgage charges.
We will continue to closely monitor firms' responses to the Statement through our day to day supervision of firms. For example, we will check that firms are stating reasons in their contract when they reserve the right to vary the MEAF, and that these reasons are valid. We will also check that firms are not including terms in their contracts which require consumers to prove that increases to MEAFs are unreasonable. This is unlikely to be fair given that it is easier for firms to show that their costs and increases to them are reasonably incurred and reasonable in amount.
Existing customers - customers who have a mortgage which started before 1 August 2007.
Past customers - customers who have paid a mortgage exit administration fee in the past.
