Home loan exit fees

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Homeowners with mortgages should beware the exit fees levied on their loans. The Financial Services Authority last week asked mortgage lenders to justify exit fees charged to borrowers who switch their mortgage. It said that some exit fees are not always made clear to customers when they take out a loan and it questioned why many fees had been increased in recent years.

Over the past decade, exit fees – paid by borrowers when they leave their lender for a rival – have soared by an average of 400 per cent up to £295 in some cases. Consumers complain that the exit fee that applied when they took out their mortgage has often shot up by the time they leave. The FSA said it has “asked some lenders to consider whether their terms might be unfair”.

Darren Cook, head of mortgages at the financial research group Moneyfacts, said: “Exit fees allow the banks to print their own money. The fact that exit fees have gone up, with no perceived added value to the consumer, means they are probably more accurately described as penalties, rather than fees.”

One of the biggest offenders is Alliance & Leicester which charges £295 at the end of the mortgage, or when a homebuyer remortgages to another lender. The bank has since said it will fix the redemption administration charge at the time the mortgage is taken out.

Other high-charging lenders include Woolwich, which imposes a £275 fee, and Northern Rock with a £250 charge, which is also imposed on loyal customers who move to one of its other deals. Nationwide is the cheapest lender at £90.

Exit fees are not always clearly flagged. Early-redemption charges, administration, exit, sealing or deeds-release fees can all be written into a mortgage contract.

Lenders can also insist you pay back initial incentives received, such as cashback or the value of the free legal or valuation fees, if you leave before a certain period has elapsed.

Borrowers should think about the effect these fees could have on their mortgages when they take them out instead of being so concerned with only the interest rate and monthly repayments.

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