Recent research by the Moneyfacts mortgage team showed that the number of mortgage companies that have raised their redemption fees is rising at an alarming rate.
In the year leading up to March 31, 2005, 53 providers raised their redemption penalties. Of these, 23 raised them by more than 100%. Alliance & Leicester raised their fee from GBP195 to GBP295, Cheltenham & Gloucester raised their fee from GBP100 to GBP225, and The Royal Bank of Scotland raised their fee from GBP75 to GBP225.
With the mortgage market being as competitive as it's ever been and interest margins shrinking, lenders are raising these fees to try to make up for some of the money they're losing and to discourage people from switching mortgages.
The redemption fee, which is also called a discharge fee, deeds fee, exit fee, or sealing fee, is an administrative fee that you have to pay when you pay off your mortgage or switch lenders. When these fees go up, it's important to remember that they don't just affect people who are applying for the first time. They also affect the many thousands of people who already have loans with the lenders in question.
The head of mortgages at Moneyfacts, Darren Cook, says: "If you only plan to keep your mortgage with the same company for a couple of years, a GBP295 exit fee is definitely something you should think about when comparing different options. With 42 providers having exit fees of less than GBP100 and 16 having no fees at all, it's important to think about how these lower fees affect you as well as the interest rates."
