The average mortgage exit fee, currently running at £200 has risen a staggering 33% in the last two years and represents a barrier to mortgage borrowers comparing products.

Now the Financial Services Authority has set out its views on recent increases in mortgage exit administration fees (MEAFs), and how it expects mortgage lenders to address the issues raised.

Ray Boulger of John Charcol said: “As a result of this report it will now be easier to make a robust comparison of different mortgages as currently the only significant unknown fee is the exit fee. In future this fee will either have to be fixed at the outset or the basis on which it can be varied will be known.”

“Many existing mortgage borrowers will have their exit fees reduced as a result of this report and many borrowers who have redeemed a mortgage in the last 4 years will be entitled to a partial refund of the exit fee they were charged.”

The Council of Mortgage Lenders has worked with the FSA on the statement, which now gives both consumers and lenders a clear picture of the FSA's expectations, and a practical menu of options for the treatment of borrowers.

Essentially, lenders have to choose by 28 February whether to -

• charge no fee;
• charge the original fee;
• charge a revised fee; or
• charge their current increased fee.

Michael Coogan, CML director general, said: “We welcome the FSA statement as a practical way forward. Transparency in fees and charges is unequivocally a good thing in terms of ensuring that consumers understand what they will need to pay at various stages.”

"Lenders will ensure that in future their exit fees, and the terms on which they may be varied, are absolutely clear to borrowers upfront.”

“But, in the UK market, where competition is tight and price competition is already fierce, the effect is unlikely to have a dramatic impact on the overall cost of a mortgage."