In recent years we have seen rises of up to 450% in the fees charged by lenders when borrowers want to redeem their mortgage. But now the Financial Services Authority (FSA) is going to crackdown on these exit fees.

To date lenders have told you the exit fee they currently charge, but have then retained the right to increase that charge at any time and without advising you. This has given lenders a free hand to increase these charges and many have taken the opportunity with an outstretched hand! Take the Cheltenham & Gloucester for example; they’ve increased their exit fee from what was £50 to £225. The Woolwich increased theirs from £95 to £275.

The FSA is now in talks with the mortgage lenders to bring them to heal. They want fees to be disclosed at the outset and for that disclosed price to be fixed for the duration of the mortgage. The FSA hopes to have the binding undertaking from the lenders by June this year.

On a wider front, always remember to take into account all the lenders charges and money saving extras when you’re working out which mortgage to apply for. To illustrate the point, let’s say you wanted a 2-year fixed rate mortgage and were attracted by the offers from The Halifax and Northern Rock.

The rate offered by the Northern Rock is currently 4.19% plus a 1.5% arrangement fee and an exit fee of £250. The Halifax’s rate is 4.39% with an arrangement fee of £499, an exit fee of £175. Within the package there’s also free legal work and free valuation that could save around £750. So which deal is the cheapest?

Taking a £100,000 repayment mortgage over 25 years and costing it over the first two years with redemption at the end of the second year, The Northern Rock comes out at £14,671 whereas The Halifax comes out at £13,864 – a saving of £807 over the northern Rock. And this saving doesn’t take the extra £750 legal and valuation savings offered by the Halifax. Therefore, The Halifax’s offer at the higher rate of 4.39% is in fact the cheaper cost on this basis.

Our advice is read all the small print! And be aware that the lenders use all sorts of words to describe charges - arrangement, application, booking, reservation, completion, early redemption are all words to described a charge or fee. So keep your eyes skinned!

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