Historically, mortgage applicants in the UK have been refunded the fees they pay to the lender if the application is unsuccessful. This leads to a situation in which the applicant is not left out-of-pocket if they fail to secure the mortgage. Conversely, the mortgage lender will not receive an income from the applicant and will effectively lose money due to the time their staff spent assessing the application.



There is a growing trend in the current mortgage market to rectify this situation and ensure that the lenders are indemnified for costs incurred on assessing unsuccessful applications.

Several UK mortgage lenders have now introduced non-refundable fees as a revenue collecting exercise. This comes in the wake of the crackdown on exorbitant mortgage exit fees that are typically charged to borrowers when they remortgage.

The Financial Services Authority has deemed the exit fees excessive and forced the lenders to bring them in line with the estimated expenses they incur during the remortgage. This means that mortgage lenders no longer have this cash bonanza to look forward to when their customers leave them. The solution appears to be to charge more fees at the outset.

For the customers, the new fee regime means that they are practically gambling when applying for a mortgage. If a customer's application is rejected, they may lose hundreds of pounds and have nothing to show for it. If their application is successful, however, they have nothing to be concerned about as they will not be forced to hand over more money for another mortgage application.

For the lenders, the new fee structure means that they have achieved what all astute investors aim for, which is to protect the downside. If the mortgage application is successful the lender will pocket the application fee in addition to making a profit on the interest and charges typically applied the mortgage throughout its term. If the application is unsuccessful, the lender will miss out on many years of interest and fee income, but will keep the application fee to cover costs.

It is obvious that borrowers will need to be on the lookout for non-refundable fees in the future and make sure they do not apply for mortgage products they have little chance of obtaining. Some lenders have products that do not require borrower's to pay fees upon application. Home owners and first-time-buyers should therefore research the market carefully to ensure they are not hit with application fees that they may not need to pay.

Alternatively, applicants should seek advice from an independent mortgage broker who can scan the entire home loan market for a suitable product. Mortgage brokers have software which can evaluate every mortgage product that is available in the UK at any point in time. Furthermore, they can search for products based on criteria such as whether or not they have non-refundable application fees.