The rise and fall of mortgage fees

02 August 2007
Exit fees have begun to fall recently, which is good news for mortgage borrowers, but July’s interest rate hike of 0.25% to 5.75% has seen other rates and fees rise across the board, according to Moneyfacts.co.uk.

Variable and fixed rate mortgages have both been hit by the rising interest rate, and that’s not the only piece of bad news for borrowers looking to take out a new mortgage, says Moneyfacts.co.uk, as lenders have increased other charges to compensate for the drop in exit fees.

While some fees have been dropped and others offset by competitive interest rates, overall, the trend is a rise in both rates and fees, with some mortgage providers even renaming their fees, as “they are unlikely to surrender this revenue stream without a fight”, says Julia Harris, mortgage expert at Moneyfacts.co.uk.

“With the actual cost of administering the exit of a mortgage deal estimated to be substantially lower than the fee charged by the lender,” she said, “the vast proportion of the exit fee is profit.” Some lenders have already taken action to reduce, lower or remove their exit fees in light of the recent exit fee deadline, but, Ms Harris warns, it is unlikely that this will be a typical reaction.

“If other rates and fees do increase or new charges are implemented, surely this is not in the interest of the consumer”, she continued. “A transparent fee, which as long as fixed from the date of application, is fairer and clearer for the consumer to see, and consistent across the market to allow for comparison. Lenders using a multitude of ways to regain this money is not in the borrower’s interest.”

Ray Boulger, senior technical manager at independent mortgage broker John Charcol, commented: “Even after the deadline, we are still waiting to hear final confirmation from several major lenders, which indicates that some are going to tough it out with the FSA. A typical exit fee is around £200 which has risen a staggering 33 per cent in the last two years. There is however now no hiding place for lenders. They have to be open about what they are doing and will have to be up front in justifying these excessive fees.”

Click here to compare mortgage deals