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July 31, 2007    

HBOS abandons mortgage exit fee

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by Gill Montia

HBOS, the UK’s largest mortgage lender, will no longer be saddling new mortgage borrowers with a £225 exit administration fee.

The move is in response to a deadline set by the Financial Services Authority (FSA), which has been reviewing exit fees after complaints from MPs and consumer groups.

Some banks and building societies have been increasing the charge during the term of a mortgage and following its investigations, the FSA has required lenders to report their position on mortgage exit fees, which are intended to recover the administration costs incurred in closing a mortgage.

Standard Life, Lloyds TSB, Northern Rock and Cheltenham & Gloucester have also abolished exit fees and Royal Bank of Scotland, which owns NatWest, is planning to do so.

Alliance & Leicester will retain its £295 fee but will not be increasing it during the term of the mortgage.

In future the FSA will be requiring mortgage lenders making such charges to justify them against the true cost of closing a mortgage.

However, existing customers of HBOS, which holds around a 20% share of the UK mortgage market, will have to pay the mortgage exit fee quoted on their mortgage agreement.

Some analyst predict that the bank may try to recover its losses by charging new customers upfront fees for mortgages, or increasing interest rates.

An update on the situation will be published by the FSA in early August.

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