Ask Sindie: The fee they didn't see coming as they left their mortgage

Your money problems solved

Q: After coming to the end of a two-year fixed-rate mortgage with Nationwide building society, we spent eight months on its standard variable rate [SVR] while seeking a new deal.

We have now remortgaged with Alliance & Leicester [A&L] but were irritated to be charged £90 by Nationwide for simply taking our business elsewhere.

Can it do this? We've never even heard of this fee. We don't remember being told about it when we took out our original mortgage nearly three years ago.

GG, Kingston upon Thames

A: Lenders have concocted a host of fancy-sounding names for this charge.

Some call it a "sealing" or "deeds release" fee, while others brand it an "early closure" or "redemption" charge (the latter is not to be confused with the separate penalty that borrowers pay for breaking out of a loan ahead of time).

Millions of borrowers, though, have christened it the "exit" fee, as the first time they are aware of it is when they leave one lender to join another. It's simply a charge for closing your account and unearthing your house deeds from a safety box to send on to the new mortgage firm.

Unfortunately, borrowers have long overlooked the fee, since it has tended to be buried in the small print. It only really hoves into view when they make their move away from a lender.

Think of remortgaging and all the standard "upfront" charges - for arrangement, legal services and valuation - may occupy your mind. But the exit fee is just as significant.

Three years ago, you could have expected to pay between £50 and £100, or even nothing at all. But today, lenders levy fees that vary wildly and can run into hundreds of pounds. At the top end, research from mortgage broker London & Country shows that A&L charges £295, Northern Rock £250, and Cheltenham & Gloucester, NatWest and Royal Bank of Scotland £225. At the "cheaper" end, fees hover around £90 at Nationwide, £95 at Derbyshire building society, and £140 at Norwich & Peterborough building society.

When one lender can do the same task at a fraction of the cost of another, customer resentment is justified.

Most exit fees have risen, not to reflect increased administrative expenses, but to claw back cash as savvy borrowers switch away from SVRs to take advantage of cheap fixed deals.

"An increasing number of people are remortgaging, and we have to cover the costs," says a Nationwide spokesman.

Before 31 October last year, when mortgages came under the aegis of the City regulator, the Financial Services Authority (FSA), details of the exit fee could usually be found in the terms and conditions. Now, however, "Key Facts" documents that explain all the different charges must be shown to borrowers - and the exit fee is highlighted here along with an explanation that it can change later.

In your case, a number of factors came into play. As you took out the loan before the rules demanded clarity on the fee, it could be you missed the details in the small print. However, you most probably wouldn't have been aware of Nationwide's exit fee because, at the time, it didn't charge one. It was only in May this year that a fee was introduced.

The building society also says it wrote to all its borrowers in January to warn them of this.

"At the time, it didn't levy an exit fee, so there would have been no reason to mention one," says James Cotton of London & Country.

This sounds unfair: how can a company change course like this?

It's an issue bothering the FSA. The watchdog recently scrutinised a number of home-loan contracts and discovered that "some lenders ... are changing their mortgage administration fees in an unfair way".

At the moment, lenders reserve the right to raise the exit fee at any point. This happened to you at Nationwide, the difference being that its starting point, in effect, was nil. The FSA is to continue to work with lenders to find a fairer way of levying this administration fee.

It must be pointed out that you have switched your loan to A&L, which is the lender with the highest exit fee (now £295) - and this can go up at any time.

"The FSA should insist the fee is fixed so that borrowers are aware of all the costs upfront and don't get any nasty surprises later on," says Melanie Bien, associate director of mortgage broker Savills Private Finance.

"It's fair enough when it's in the region of £100. But it doesn't explain why some lenders have to charge as much as £295.

"If one lender can do this work for a sixth of the cost of another, something is amiss."

If you need help from our consumer champion, write to Sindie at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS or email sindie@independent.co.uk. We cannot return documents, give personal replies or guarantee to answer letters. We accept no legal responsibility for advice.