The Financial Services Authority has revealed today in its consultation paper that where fees are rolled up two Key Facts Illustrations may need to be issued.
It says an outright ban on the roll-up of fees and charges would not be in consumers’ interests.
But the roll-up of fees is a widespread practice amongst lenders and there is significant variation between lenders on the number of their consumers whose fees are rolled into the loan.
Estimates provided by five smaller lenders ranged from less than 10% to 98%, with an average across all five of 59%.
Respondents to the discussion paper were split on whether the existing disclosure requirements for the roll-up of fees and charges were adequate.
There is an existing requirement on firms to provide relevant details in the KFI, the illustration must state that mortgage payments would increase and must include details of what the mortgage advance would increase to if the fees and charges were rolled-up.
The rules also provide that a consumer who wishes to roll-up fees into the mortgage can request another illustration that shows the effect of this on the payments.
This is followed at the offer stage by a further illustration which must reflect any changes to the charges since the mortgage was applied for.
The FSA says consumers who are rolling-up their fees into their mortgage should therefore be well aware of what their increased monthly repayments would be as a result.
It says: “We think there could be value in letting the consumer make an immediate and direct comparison of the impact of rolling-up fees into the mortgage by requiring that they are presented with two KFIs, one which presents the costs with and one without the fees rolled-up.
“Also, sellers will be required to keep a record where the consumer elects to roll-up the fees.”