Exit Fees

BBC 30 April 2005

Mortgage exit penalties rise

It is the second time in four years Abbey has put up the charge
The cost of moving from one mortgage to another is going up, with rising exit penalties the latest charge to hit consumers.
High St lender Abbey has been notifying its customers that the cost of leaving their mortgage is rising to £225, which is an increase of 25%.

This charge is over and above any penalty levied for leaving a special deal early, and affects all customers.

And Abbey is not alone. Fifty three lenders have put this charge up in the last 12 months, and 23 of those have more than doubled the cost, according to personal finance data publisher Moneyfacts.

Gary Hockey-Morley, Director of Mortgages at Abbey, accepted the increase put it close to the top of the worst-buy table for early repayment charges:

"We are not the most expensive, but it puts us in the pack," he told BBC Radio 4's Money Box programme.

"There are two that are more expensive, there are a few others the same as us, and there are one or two that are less," he said.

Admin costs

Mr Hockey-Morley said the decision was made after a review of administration costs, including deed preparation; redemption statements, and dealing with solicitors' enquiries.

He noted Abbey had not increased the charge for two years, and said the company's costs "in these particular areas" had gone up by 26% in that time.

In the past... they may have included it in their interest rate

Michael Coogan, CML
Michael Coogan, Director General of the Council of Mortgage Lenders, said that due to a slowing market "all lenders are having to look at their fees much more closely now".

And he told the programme: "I think in the past [lenders] may not have been concentrating so much on recovering the fee directly from the customers who are causing the cost. They may have included it in their interest rate."

Mr Coogan said customers could always take a case to the ombudsman if they felt a fee was too high.

"The ombudsman in past cases... has indicated that fees that do not link to the reasonable cost are not upheld, the customer is not forced to pay them," he said.

Different figure

David Hollingworth of mortgage brokers L&C told the programme that:

"Most people's gripe here is not that there is a fee, but more about the increasing of that fee over the term of the mortgage, so when you are taking a deal out it can be one figure, when you come to actually switch, then you are looking at a very different figure."

Consumers have become much more empowered in recent years

David Hollingworth, L&C
Asked if lenders were imposing the charge to discourage people from moving, he replied:

"Yes. People have got much more used to shopping around. Consumers have become much more empowered in recent years.

"Workloads will undoubtedly have increased for lenders, but [the early repayment charge] certainly acts as a deterrent."