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"On completing a new mortgage most consumers will be fully aware of any initial set up fees they are required to pay, usually choosing their mortgage based on the interest rate and fees. But what consumers may not realise is many providers also charge exit fees. So when looking for their next great deal, they may in effect end up paying twice!
"Exit fees come in many different guises, being termed early redemption charges, administration charges, exit fees, sealing fees or deeds release fees. They may also include rebates of initial incentives received for example any cashback advanced, or the value of the free legal or valuations fees.
"Not only have we seen an increase in the number of providers imposing these fees, but also the level of charge has risen steeply, at a rate much higher than inflation and at a rate disproportionate to the level of mortgage advance.
"Most consumers are agreeable to paying fees if they are able to see a return, for example by way of a lower rate, but exit fees tend to offer no tangible benefit to the consumer and are often tucked away within the small print of the application, leaving some consumers completely oblivious to their obligation.
"Even worse still, exit fees effectively allow the banks to 'print their own money'. Most exit fees are not a fixed value agreed at the time of completion, they can and do change over the term of a customer's mortgage.
"Take for example a consumer who in 1996 purchased a mortgage with an exit fee of £50. Ten years later when the consumer may be ready to review their mortgage provider, this £50 fee may have unknowingly risen to well over £250. Consumers are agreeing to pay an unknown amount – not something anyone would naturally be comfortable with!
"Exit fees may be used by lenders to reclaim any income they miss out on by not charging up front, in the hope of attracting new business with fee free deals. They may also prove a useful tool to improve customer retention. Consumers looking to change providers need carefully to consider if it will provide any financial benefit, as the savings from a lower rate can soon be eroded when faced with the combined cost of exit fees from their existing mortgage and set up fees from their new provider.
"As you can see from the table below, there have been substantial increases in these fees over the last ten years, an average increase of almost 400%. If your mortgage has another ten, fifteen, twenty years to run, just image the size of the fee you could be faced with!"
|Mortgage Provider||10 Years Ago||5 Years Ago||Now|
|Alliance & Leicester||£90||£150||£295|
|Bank of Scotland||£50||£150||£195|
|Bristol & West||£50||£100||£195|
|Cheltenham & Glouserter||£35||£50||£225|
|Royal Bank of Scotland||£80||£75||£225|
|Average SVR Rate||7.10%||6.70%||6.44%|
|Average Mortgage Value1||£44K||£62.79K||£107.88K|
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