Following a ruling by the Financial Ombudsman Service (FOS) more Scottish borrowers may be entitled to reclaim exit fees after it found that charges levied by Northern Rock were discriminatory.
The FOS took the decision to compensate a borrower who had accused the bank of charging extra costs when clearing their final mortgage balance.
Borrowers in Scotland have always paid higher redemption fees than those in England and Wales, as north of the border a solicitor is needed to carry out a mortgage discharge, representing an extra cost to the borrower of around £180.
While the process in England has been simplified and is now mostly electronic, in Scotland a solicitor has to be instructed to draft the deed and have it signed by the lender in question before it is submitted to the Keeper of the Registers of Scotland, where the security can eventually be discharged.
Some lenders still charge Scots a fee that supposedly covers any costs of the discharge without telling borrowers that they will also need to pay for a solicitor’s services.
The title reported than an Edinburgh driving instructor - Douglas Rae - took his case to the FOS after paying Northern Rock a £250 discharge fee up front, only to learn that he would also have to pay a solicitor £180 for his part in discharging the loan.
In its initial decision, the Ombudsman ruled that because Northern Rock had not discharged the mortgage it should cover the additional cost incurred by Rae – £180 – and pay him an extra £50 for the “distress caused”.
The lender appealed against the decision twice, only for the Ombudsman to maintain its stance in its final decision.
Such a ruling opens the way to compensation claims from other borrowers in Scotland who have paid both a discharge fee and a solicitor’s costs for carrying out the discharge on a property.
Discharge fees tend to weigh in at around £200 to £250, even though some mortgage brokers believe the true cost of the administration involved is no more than £50.
Not all banks levy a discharge fee, though some incorporate it into an umbrella charge.
The Bank of Scotland and Halifax, for example, include administration costs - such as the discharge - in a £265 mortgage account fee.
Rae told the title: “Lenders move the goalposts after you’ve signed up by telling you that you need to get the discharge done through a solicitor.
“But they still charge you even though they’re not incurring the cost. It is typical of the arrogance of financial companies.”
He added: “There was no mention at all at the outset that we would have to pay a solicitor as well. They should have told us that at the beginning.”
A spokesman for Northern Rock Asset Management said, however: “NRAM mortgage discharge fees are calculated to cover the costs that NRAM incur when discharging a mortgage, these fees are charged to all NRAM customers regardless of location. NRAM are not responsible for fees charged by external Scottish lawyers.”
Mike Dailly, Principal Solicitor at Govan Law Centre, described the lender’s approach as “unfair and discriminatory”.
He added: “Charging a fee to discharge when in actual fact you have discharged nothing, is money for old rope.”
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