Lenders have increased their early redemption penalties by over 100% in the last twelve months research from Moneyfacts has revealed.
Moneyfacts says 53 providers have upped their charges in the year to 31 March 2005, with 23 of them increasing the charges by over 100%.
Alliance & Leicester has increased its fee from £195 to £295, while Cheltenham & Gloucester has increased it redemption penalty from £100 to £225 and Royal Bank of Scotland has increased its penalty from £75 to £225.
Moneyfacts says lenders have chosen to increase fees in order to recoup some of the revenue they have lost as a result of interest rate margins being squeezed by what has become a furiously competitive market, particularly as the level of competition has also meant customers are more prone to switch mortgages to get a better deal.
Research warns the increase in fees have not just been applied to new customers but also to existing customers.
But Northern Rock, while charging one of the highest redemption penalties at £250, has guaranteed its redemption penalties will not charge from the original figure on their customer’s mortgage offers.
Darren Cook, head of mortgages at Moneyfacts says those looking to keep their mortgage with the same providers for a couple of years need to take into account the exit charges now being applied to mortgage offers.
“With 42 providers having an exit fee of less than £100 and 16 with no fee at all it is worth weighting up the impact of these lower fees, not just interest rates,” he says.
Sally Lauder, spokeswoman for Alliance & Leicester, defended the lender’s position on redemption penalties saying A&L’s decision to increase its fee followed a review in August 2004 of the costs associated with closing down a mortgage loan.
“Our redemption penalties are not applicable to existing customers switching to another A&L mortgage, charges are not applied to a mortgage that is coming to the end of its natural life and if the borrower has an outstanding balance of less than £10,000 then the charge is only £195,” she adds.
She also claims Northern Rock’s guarantee on early redemption chargers is a recent innovation but says A&L has no current plans to do the same.
David Matthew-Hillyard, managing director of Custom Made Mortgages, says lender fees have always been an issue but points out this is only an issue now because of greater transparency from lenders following demands from intermediaries.
“There’s an element here of borrowers wanting to be able to have their cake and eat it. Lenders can’t have a market leading rate and then not try to cover that through an increase in fees. At least now there are fewer hidden charges. The institutions have to make money and while there has been an increase in fees they are probably still lower than they were 10 years ago,” he adds.
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