Summary

Mortgage companies have been hitting customers with high exit charges for years, and they've been getting even higher recently. Until now, as we explain in this article.

Mortgages. FSA moves to cut exit fees

Author: Anna Richardson

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Life Insurance News

but it can do nothing to explain why exit fees on mortgages have increased by up to 450% in the last 3-5 years.

Mortgage lenders charge an exit fee to borrowers that pay off or leave their mortgage ( life insurance policies ) early - also known as a redemption charge. The Financial Services Authority (FSA) previously left them to it but has now realised that they need to put an end to these increases.

When a borrower signs up for a mortgage, the lender, by law, has to inform the borrower of the exit fee. However, lenders are allowed to increase these charges without telling the ( insurance ) borrowers, which is exactly what they've been doing. Why not - it's free money!

We have a few examples which illustrate the issue perfectly. The Cheltenham & Gloucester used to charge £50 - now it's £225. The Woolwich have also increased from £95 to £275. It's a ( cheap car insurance ) way of penalising borrowers for switching mortgages and seeking better deals - while at least getting a cut of the action for themselves. The 'rate tarts' (as the savvy borrowers who shop around are called) still get a better deal, but it costs them more to get it.

The FSA is in the process of addressing this matter, and if all goes to plan, there will be a binding agreement made between the mortgage lenders and the FSA by June this year. The FSA is proposing that the exit fee quoted at the time the borrower signs up is left the same for the duration of the mortgage - and the lender cannot increase the fee at any point.

It's a stark reminder to borrowers that it's very important to look at all the extra charges when choosing a mortgage. One mortgage may offer free incentives, while also charging ( best mortgages ) higher fees in other areas. It all needs to be considered, and we have put a few figures together to illustrate the point.

Say you were comparing the Northern Rock and the Halifax for a 2-year fixed rate mortgage.

Northern Rock Halifax

Interest - 4.19% Interest - 4.39%

1.5% arrangement fee £499 arrangement fee

£250 exit fee £175 exit fee

Plus free valuation and conveyancing

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