'Rate Tarts' Blamed For Increase In Mortgage Exit Fees

Mortgage exit fees have more than doubled over the past year as lenders look for ways to stop borrowers taking advantage of discounted offers.

Financial data specialists Moneyfacts published their research showing that exit fees have increased by 117%, with some lenders increasing their fees by nearly 300%.

These borrowers, so-called 'rate tarts' take advantage of discounted offers and then switch products when those deals are about to expire. This has also occurred in the credit card industry, with lenders threatening to axe their special introductory offers.

More and more lenders are looking at increasing exit fees in order to combat the problem. The Alliance & Leicster has come under intense criticism for increasing its exit fee by £100 to £295, whilst Abbey, one of the UK's largest lenders will increase its fee from £99 to £225 from 11 May.

The smaller lenders seem to have introduced the biggest increases, percentage wise. Scarborough Building Society has increased its fee from £50 to £150, Stroud and Swindon Building Society has increased its fee from £35 to £125 and Direct Line have increased from £85 to £195.

Supposedly, the fees are to reflect the administrative cost of closing a mortgage, but recently, it seems as though the lenders are using the fee to lock-in customers.

Darren Cook, Moneyfacts head of mortgages, said: "When you take all the increases over the past 12 months, our research shows the average increase is 117%. Lenders are trying harder to retain customers. If you come to the end of a deal, a £300 fee might make you think again about switching and you may look at some of the deals your lender already provides."

Mr Cook added that 'rate tarts' are making it increasingly difficult for mortgage lenders to make a profit, especially on two-year deals. He said: "Lenders say they need a borrower to stay with them for seven years before they make money on the loan so if people are leaving after two years, they will obviously struggle. The mortgage market is so competitive anyway that lenders are having to offer very attractive deals to entice customers in the first place."