LEEDS & HOLBECK Building Society has increased its fees for borrowers who switch to a rival lender. The exit penalty levied on customers who leave for a better deal elsewhere has risen by more than 75 per cent.

The lender is the latest to increase its exit penalties to squeeze more revenue from customers. Co-operative Bank, Nationwide Building Society and Alliance & Leicester have all increased their exit penalties in the past year.

Melanie Bien, of Savills Private Finance, the mortgage broker, says: “The trend for raising these charges started a couple of years ago. Interest rates were at a record low and lenders were desperate to find other ways of boosting their profits.”

Lenders who increase their exit penalties with little or no notice period have attracted criticism from brokers and customers alike, with some branding it as “back door charging”. When the Co-operative Bank increased its exit penalty from £85 to £195 in February, one customer likened it to entering a car park where the prices were clearly displayed, only to find that they had more than doubled when it was time to pay.

Rob Clifford, of Mortgageforce, the mortgage broker, says: “It is very frustrating as a professional adviser and for consumers when lenders impose fees that appear to be little more than a back door method of increasing revenue from mortgage customers.”

Since the beginning of this month, Leeds & Holbeck customers who choose not to pay the lender’s more expensive standard variable rate (SVR) when their discounted or fixed-rate deal comes to an end will pay £195, up from £110. However, the lender says that the charge does not apply if borrowers choose another deal from its own mortgage range.

It is not only existing customers who are hit by the society’s revamped charging structure. New borrowers must now pay more to receive cash from the lender. The charge for a telegraphic transfer of funds has risen from

£30 to £35.

However, Leeds & Holbeck’s new customers are not alone in having to fork out more when they take out a home loan. Mortgage arrangement fees have been creeping up steadily. Nearly all lenders have jumped on the bandwagon, some pushing up fees to about £700.

Research from Your Move, a mortgage broker, shows that borrowers must now pay nearly £500 to secure the best-buy two-year fixed-rate mortgage deal — £200 more than in January last year.

The cost of the best-buy three-year deals has also risen by about £100. But those who choose a five-year fixed-rate deal are likely to pay no more than they would have forked out last January. In contrast, the savings from remortgaging to a low-cost five-year fix are now greater than they were last year, says Your Move.

Borrowers who switch an interest-only £100,000 home loan from an average SVR to a best-buy five-year deal will save £1,210 in the first year, or £100 a month. Making the same move in January last year would have saved borrowers £31 a month.

Those who switch a £100,000 capital repayment mortgage to a low-cost five-year deal will make more modest monthly savings of £65 a month, but they will chip off an extra £430 from their outstanding capital within the first year.

Jon Round, of Your Move, says: “The combination of an increase in the arrangement fees on short-term loans and the rise in value of five-year deals has made borrowers take significantly more notice of the benefits of locking into longer fixes.”

Despite the increase in the potential value of five-year loans, Your Move says that the biggest savings are still offered by two-year fixed-rate deals. Once the arrangement fees have been paid, those who switch a £100,000 mortgage from an average SVR to the best two-year deal could be in line for savings of £1,410 in the first year.

For the best mortgage deals, turn to Databank on Page 18.

GRÁINNE GILMORE