By Julian Knight BBC News personal finance reporter

Arno de Wever: puzzled by mortgage exit fees

Exit fees are meant to cover the administrative costs of closing a loan and returning a homeowner's deeds.

Mr De Wever writes:

There is no limit to what they can charge. If it has doubled in the 2 years since I have been with them, I dread to think what it will be in 10 years time."

"I found this surprising since deeds are now kept electronically by the Land Registry, so what is this fee actually for?

"My suspicion is that mortgage companies offer attractive low interest rates to attract customers and make their profits on what amounts to made-up fees.

Mr De Wever asked BBC News to investigate.

"Traditionally these fees have been to cover the cost of storing and then forwarding property deeds," said Ray Boulger, technical director at mortgage broker John Charcol.

Ray Boulger thinks a �50 fee would be fairer

"But since 2003, lenders have not had to do this as deeds are kept electronically by the Land Registry.

"Instead of abolishing the charge lenders have renamed it, stating it is for administration."

Moneyfacts, the independent product research group, recently looked at mortgage exit fees.

Out of a sample of 18 of the UK's biggest lenders, Moneyfacts found that every single one had either introduced or raised an exit fee in the past five years.

The majority had more than doubled their exit fee over that time period.

The exit fees are a customer retention tool, a disincentive for people to switch mortgage provider, a penalty dressed up as a fee Ray Boulger, John Charcol

Go back even further and the increases are yet more striking.

Fifteen years ago Alliance & Leicester - Mr De Wever's lender - charged an exit fee of �7.50. Today the fee is �295, an eye-popping rise of nearly 4,000%. Even taking inflation into account, the rise is close to 3,000%.

"If I was being charitable, I would say that lenders have some administration costs such as telling the solicitor how much is left owing on the mortgage and actually closing the account," said Mr Boulger.

"I think a fee of about �50 would be fair for that scale of work.

"But the exit fees are a customer retention tool, a disincentive for people to switch mortgage provider, a penalty dressed up as a fee."

Mr Boulger called on the industry regulator, the Financial Services Authority (FSA), to cap future increases in exit fees at the rate of inflation.

Sally Lauder, mortgage press manager at Alliance & Leicester, told BBC News that customers needed to look beyond exit fees at the bigger picture.

"The key issue for customers is overall value - in other words the total amount they pay, including the interest rates and all fees and charges," she said.

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"Rather than looking at any one fee in isolation, we would ask borrowers to consider overall value."

When pressed as to what its exit fee actually covered, Ms Lauder said that she could not disclose for business reasons other than to say it related to the "administration and work undertaken in redeeming a mortgage account before the end of its natural term".

Likewise, the Council of Mortgage Lenders (CML), the industry trade body, could not provide an answer as to what administration was actually involved in redeeming a mortgage.

The Financial Services Authority (FSA), which has regulated the mortgage industry since 2005, is reportedly unhappy at mounting exit fees.

"Any exit fee should reflect the actual costs of winding up that mortgage," FSA spokesman David Whiteley told BBC News.

"We have made sure that we communicated this to the lenders and that we expect them to treat customers fairly."

However, Mr Whiteley made it clear that the FSA was not in the business of capping mortgage fees.

Mr De Wever loves his home but not his mortgage

Alliance & Leicester's response misses the mark.

How can they say this fee is for redeeming a mortgage account before the end of its natural term, as this fee is also charged when the mortgage account has reached the end of its natural term?

But I do not think that exit fees are a retention tool.

You see, the fees are kept secret and are therefore hardly used as a disincentive to switch, but more a pure profit generator.

Exit fees should reflect the true cost made by the mortgage provider.

As a minimum, the mortgage provider should not be able to change the exit fees without giving the customer the option to cancel the contract with no cost.