In light of the recent Consumer Credit White Paper, the Consumers’ Association has called on the Government to end early redemption penalties on mortgages.
Laurence Baxter, senior policy advisor at the Consumers’ Association, said: “With booming debt in the UK it is disappointing that the Government has failed to put an end to early settlement fees for all borrowers. These deals put consumers off switching and tie them into expensive deals. Some providers have abolished them. The Government should force the rest of the industry to follow suit.”
The White Paper reported that the standard method of calculating early redemption penalties, the ‘rule of 78’, resulted in substantial benefits to the lenders. This rule is to be abolished and replaced with actuarial methods, while lenders must state the right to early repayment and give examples of costs at varying times. 79% of unsecured loans currently carry a redemption of two months or more.