Lenders double mortgage exit costs

MORTGAGE exit fees have risen by more than 100% over the past year as lenders try to put a stop to 'rate tarts' switching products.

Research from financial data specialists Moneyfacts has revealed exit fees have increased by 117%, with some lenders increasing their fees by nearly 300%.

Lenders are concerned that borrowers are taking advantage of discounted offers and switching products when those deals come to an end.

The Alliance & Leicester has come under intense criticism for increasing its exit fee from £195 to £295, while Nationwide has also slapped on an extra fee. Abbey, one of the UK's largest lenders, will increase its fee from £99 to £225 from 11 May, although it also used to add on an £89 discharge fee, which has now been dropped.

In percentage terms, the smaller lenders have introduced the biggest increases. Scarborough Building Society has increased its fee from £50 to £150, Stroud and Swindon Building Society from £35 to £125 and Direct Line from £85 to £195.

The fees are supposed to reflect the administrative cost of closing a mortgage, but more and more lenders are using the fee to lock-in customers.

Darren Cook, Moneyfacts head of mortgages, said: 'When you take all the increases over the past 12 months, our research shows the average increase is 117%. Lenders are trying harder to retain customers. If you come to the end of a deal, a £300 fee might make you think again about switching and you may look at some of the deals your lender already provides.'

Cook added that 'rate tarts' had made it increasingly difficult for lenders to make a profit on mortgages, particularly on two-year deals. He said: 'Lenders say they need a borrower to stay with them for seven years before they make money on the loan so if people are leaving after two years they will obviously struggle. The mortgage market is so competitive anyway that lenders are having to offer very attractive deals to entice customers in the first place.'