The door has been opened for borrowers north of the Border to reclaim certain mortgage fees after a ruling by the Financial Ombudsman Service (FOS).
It found in favour of a reader of The Scotsman who accused Northern Rock of discriminating against borrowers in Scotland by forcing them to pay extra costs when clearing their final mortgage balance.
The case centred on the controversial discharge fee – also known as an exit, deeds or redemption fee – which is designed to cover the cost of paperwork such as removing the mortgage from the title deeds.
But borrowers in Scotland often pay more than those in England and Wales for the same process, as north of the Border the discharge has to be carried out by a solicitor at an extra cost to the borrower of around £180. While the process in England has been simplified and is mostly electronic, in Scotland a solicitor has to be instructed to draft the deed and have it signed by the lender before it can go to the Keeper of the Registers of Scotland, where the security can be discharged.
Some lenders still charge Scots a fee that covers the discharge costs without telling them they’ll also need to fork out for a solicitor to do it.
Edinburgh driving instructor Douglas Rae took his case to the FOS after paying Northern Rock a £250 discharge fee upfront and only later learning that he would have to pay a solicitor £180 for carrying out the discharge process.
“Lenders move the goalposts after you’ve signed up by telling you that you need to get the discharge done through a solicitor,” said Rae.
“But they still charge you even though they’re not incurring the cost. It is typical of the arrogance of financial companies.” 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.
A spokesman for Northern Rock Asset Management said: “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.”
But Rae said: “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.”
The ombudsman’s ruling paves the way to compensation claims by 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 be around £200 to £250, even though mortgage brokers believe the true cost of the administration involved is no more than £50. Not all banks levy a discharge fee, however, while some incorporate it into an umbrella charge.
Bank of Scotland and the Halifax, for example, include administration costs such as the discharge in their £265 mortgage account fee.
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.”