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Exit strategy

The July 31 deadline for lenders to report back to the FSA on exit fees is looming and last week saw Cheltenham and Gloucester become the first lender to announce to the world it will be scrapping its charges for all future customers.

So the pressure is on. Will other lenders follow C&G’s lead? Can they afford to lose the extra income these charges provide? So far, only one other lender has come out and said they will be following suit. Bristol & West is the second lender to say it will be axing its exit fees from July 31, including its Bank of Ireland brand.

A lot of big name providers such as Alliance and Leicester, Britannia Building Society, Yorkshire Building Society and Nationwide Building Society have declared that they will be keeping their fees the same. With Nationwide charging one of the smallest amounts at £90 their spokeswoman says they are comfortable at being able to justify this amount to the FSA. But with A&L sticking with their charge of £295 – the highest in the market – how confident can they be at explaining exactly why they feel they can charge this much?

C&G and Bristol & West will join only HSBC, ING Direct and Stafford Railway Building Society in not charging an exit fee.

After a survey of the market by Money Marketing, the majority of the top 20 lenders seem to be holding their cards close to their chests for the time being. Leading lenders including Halifax, Abbey, Northern Rock, Woolwich and Royal Bank of Scotland all say they have yet to make a decision. One might hazard a guess that they are waiting to see what other lenders do before coming out with their decision, but then maybe I’m being too cynical.

But if more lenders do take the decision to scrap exit fees you can be sure higher charges will appear somewhere else to make up for the loss of money. analyst Lisa Taylor says that “should more lenders scrap exit fees or at the very least fix them from point of application, the lenders will be losing revenue as a result. And from past experience in other markets, when providers are shoehorned into a decision, where revenue is hit as a result, they will be sure to look for other avenues to recoup this income.”

Taylor adds: “Will arrangement fees be increased further, rates upped by a fraction or other rates and fees tweaked? But there’s a good chance lenders will take some form of action to recover this fee income.”

Meanwhile this week saw two conflicting reports come out on how mortgage lending has fared in June. The CML reported that gross mortgage lending reached a new record of £34.2bn, up from £31.4bn in May. The CML believes this is due to seasonal effects and borrowers’ response to higher interest rates.

But it points out that even though lending was up 9 per cent in May, this was in fact a lower monthly increase for June than in each of the last two years – with 12 per cent in 2006 and 15 per cent in 2005.

The BSA has reported different findings, however. Figures for June show gross advances increased slightly over the month, but that rising mortgage repayments led to a fall in net advances, from £1,261m in May to £1,178m. In June 2006 net advances were £1,894m.


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