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Mortgage cancellation fees

ended 10. July 2024

Newspage asked brokers if it is fair, after submission of a mortgage, for firms to charge non-refundable/cancellation fees (fixed or perhaps a tiny percentage of the loan amount) if the borrower/client changes their mind and decides not to proceed? Is this practice is in line with Consumer Duty? 

12 responses from the Newspage community

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Craig Fish
Director at Lodestone Mortgages
While I understand that it's very difficult when you have put in a lot of work to then not get paid your proc fee is disappointing, I'm afraid it is quite unfair to offload that cost onto the customer. People don't proceed with mortgage applications with the aim of then cancelling them. They want them to complete and so if they have to cancel or pull out there will be a very good reason for this, and they are furthermore likely to be losing money already. To charge them at this difficult time lacks compassion and stinks of profiteering and I'm sure the FCA would have something to say. Charge a fee on application and another on offer, but not a cancellation fee.
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Ben Perks
Managing Director at Orchard Financial Advisers
There is no place for charging a cancellation fee to customers and it’s this sort of practice that has plagued the reputation of the industry over the years. Borrowers should have the freedom to pull out of a purchase they are not comfortable with and not have to worry about any unnecessary financial implications. Yes, this means there will be occasions when brokers do a lot of work for very little. But that’s the nature of the game and reputationally it is better to take the hit and look after your customers.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Cancellation fees on mortgages are diabolical. The borrower accepts to pay on application or offer for a service that is being delivered, but to charge the client if they then change their mind in some instances up to 0.5% of the mortgage borrowing is disgraceful. This flies in the face of Treating Customers Fairly (no onerous restrictions) and doesn’t abide by Consumer Duty. Someone borrowing £500k could pay £500 on application and then, if they don't proceed, get billed for a £2500 cancellation fee. The FCA should clamp down on any firm who deems this practice acceptable.
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Tracey Dixon
Owner/Broker at Pure Mortgage and Protection
Unlike cancellation fees, many brokers have non-refundable fees that depend on the situation. This makes sense because brokers invest time advising clients, researching options, and submitting applications. For instance, a fee might be appropriate if a client withdraws after significant work has been done, or if they withhold crucial information that alters the advice given (like forgetting to mention bankruptcy).

However, transparency is key. Clients should be informed about any potential fees upfront and agree to them before proceeding. There's no room for surprises later.

Fortunately, most brokers prioritize client satisfaction. They're not in the business of exploitation. So, if a client decides against the initial application, many brokers will try to transfer the fees to a new application if the groundwork and documents are still relevant.
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Bob Singh
Founder at Chess Mortgages
I nearly fell through the floor when hearing about this. It’s clearly a network compliance failure as this is an absolute and clear breach of consumer duty rules. To bill a client a “cancellation” fee that could be many time larger than the success fee is downright unlawful. Brokers' fees are always in the news and, whatever your viewpoint, this one is a little hard to swallow. A KFI needs to reflect the fees agreed clearly so the client knows how the fees accrue or are charged and whether any upfront fees are refundable if the case does not proceed.
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Simon Bridgland
Director at Charwin Private Clients
Cancellation fees are something from the dark ages and certainly not in line with Consumer Duty, akin to a fee being levied for not taking a brokers insurance products. Non-refundable application or advice fees are understandable given the amount of work taken to submit an application, but charging an extra fee for cancelling seems very unfair considering the client would have already been charged for the broker's work. A cancellation fee is nothing short of a firm griping about not earning a proc fee. I feel this suggests the other fees being charged by a broker are ill-thought out and not mutually beneficial for both borrower and broker.
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Ken James
Director at Contractor Mortgage Services
This sounds like something from a Charles Dickens novel: "Please Sir can I have some more .. More!" Most brokers do charge for their time and for providing their expertise and I have no issues at all with this, but to also then charge a client a cancelation fee if they decide to step away from the application, this is borderline ruthless. Circumstances can change for so many different reasons, what if the client was diagnosed with a serious Illness or they were notified they were being made redundant, are they still expected to pay a cancellation fee? Shocking behaviour. It’s also damaging for their brand and for any potential repeat business. What are they thinking, more likely they are not, for some it’s what can we get out of this now and lets not worry about tomorrow. I am all for charging fees but I am also all about treating customers fairly. This is a bad practice and it needs to be reviewed and stamped out.
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Justin Moy
Managing Director at EHF Mortgages
We have to accept that not every potential borrower is in the right place to make financial decisions, and may need to abort their plans through no fault of their own. Typically that may be due to family issues, or some level of vulnerbility that really needs extra support from brokers. It's not a means to monetise that difficult situation to their advantage, bringing our industry into disrepute. This is what the FCA and lenders should be concentrating their efforts to remove from our industry, not exploitation of the vunerable.
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Daniel Hobbs
Managing Director at New Leaf Distribution
This is a clear breach of consumer duty rules without a thought for the customer at any stage. The network that approves this should hang their heads in shame. Over a year into consumer duty and we’re still seeing insane practices putting profit above all else.
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Samuel Gee
Director at Manning Gee Investments Limited
In our business, we charge a fixed fee at the point of successful Decision in Principle. This is where the advice work has been completed, and it also doesn't compel the client to move forward. What it does do is ensure we are paid for our work and for the risk we are taking when providing advice to the clients, whether they decide to move forward or not. If an application is then put in and subsequently cancelled by the client, we are paid fairly for the work they have asked us to do, and our clients are fully on board with the fact we charge at Decision in Principle. It's been a great change for us as we aren't reliant on a sale. The proc fee helps to cover the cost of packaging to the lender's requirements, as always has been the case. This approach has not only safeguarded our business but has also fostered a transparent and trusting relationship with our clients. We do not charge an additional fee if a client returns to us for a subsequent application.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
I've not come across any firms that charge an actual cancellation fee, but many will charge a fee which is non-refundable, depending on the circumstances. Given how much work is done to advise the client, research the market and submit the application to the lender I think it's totally reasonable for the broker to retain a fee if the client chooses to withdraw, or if the client failed to tell the broker something that fundamentally changes the advice; "oh, did I forget to mention I'm currently bankrupt?" for example. That being said, any fees need to be discussed with and accepted by the client from the get-go, so there should be no surprise if the client later changes their mind. Most brokers will always try their best to accommodate a client, we're not here to rip people off, so on many occasions a fee can be transferred to a new application if the client chooses not to proceed with the original one, as much of the work done and documentation collected will still be relevant.
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Hannah Bashford
Director at Model Financial Solutions
I know this can be common place with insurance, which is also not cool, but with mortgages it’s just downright profiteering. Lots of things can happen that mean a mortgage doesn’t go through and making money from those unfortunate situations is unfair. I assume the companies involved do not charge an upfront fee because surely that is what the upfront fees are for: to compensate you for the work you do before the mortgage completes?