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Mortgage approvals on the rise, but so are costs . . .

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New figures reveal that in March this the number of loans approved for home purchase have reached the highest level since August 2004, indication that the housing market is not only approaching stability but is set to rise again in the foreseeable future. Good news as this may be for homeowners, the increase in mortgage approvals comes at the same time as a number of lenders increasing their redemption fees.

Therefore, despite optimism in the market, now might not be the best time for existing borrowers to switch lenders, though new entrants could be advised to apply soon.

According to research from Moneyfacts some lenders have increased their redemption fees by as much as 100 per cent over the last 12 months, with potential exit costs of some £300. Since last year 53 providers have increased their redemption penalty, almost half of whom by over 100 per cent. The reason for these surges in costs is down to the fact that the mortgage market has grown more competitive than in the past, making it difficult for lenders to enjoy strong profit margins. For many, the only viable option to is increase redemption fees, which ultimately impacts upon existing borrowers.

The immediate impact of these developments is that many borrowers will be deterred from switching lenders in order to avoid incurring the additional cost. Also, borrowers should be warned that increases in exit fees could affect existing customers as well as any new applicants. Nonetheless, the outlook is not so grim across the board. Moneyfacts reports that over 40 providers have an exit fee of less than £100, and an encouraging 16 providers have no such fee in place at all, making switching lenders something of a moot issue.

Recent reports have found that millions of Britons have not changed mortgage providers in almost a decade, suggesting that for many, exit fees are of no concern whatsoever. However, a changing economic climate and greater awareness of the benefits of switching could lead to a surge in the number of borrowers looking for a new mortgage deal.

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