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Ask the expert: “Can I claim back bank charges?”
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Q2. I have recently signed up with Woolwich for a fixed-rate mortgage because my previous fixed rate had ended. I found myself in a Catch-22 situation because to be able to sign up for the fixed-rate deal there was a charge of around £650, which seemed a lot to me.
What I’m wondering is: are these classed as bank charges and is there any way to claim them back, or are they legal?
Sadly, they are 100% legal and in no way comparable to bank charges. Lenders levy these fees is for two interlocking reasons:
1) There are admin costs involved in processing and completing a mortgage application.
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2) The very fact that mortgage borrowers are switching deals every few years mean that lenders don't make back the money they have splashed out by offering the fix in the first place. The lenders want you to stay put on their variable rate when the deal ends – but you've short-circuited that by moving, hence the higher charge.
Factor in fees
In turn, this means that when you move to a new fixed rate, you should take the application/completion fee into account. Personally, I always divide it by the number of months the deal lasts for – on the assumption that at the end of the deal I will be switching loans again.
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So, for instance, the £650 fee spread over, say, a two-year deal will cost you an extra £27 a month. That doesn't include any additional survey and legal fees, or the cost of closing the mortgage when moving to a better rate.
Calculating the amount this way allows you to work out whether the new deal is better or worse than the one you’re currently on.
By the way, since the summer of 2007 it hasn’t actually been possible to claim bank charges back. The main high street banks and the Office of Fair Trading (OFT), the credit watchdog, have agreed to a legal test case being heard next year, at which the rights and wrongs of bank charges will be decided on by a judge once and for all.
Until then, the banks have agreed with the OFT that no cases will receive payouts for the moment.
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