HBOS, Britain’s biggest mortgage lender, cut its £225 exit administration fee for future customers yesterday before a deadline set by the industry watchdog, which is reviewing the charge.

The Financial Services Authority began to crack down on exit fees this year after pressure from MPs and consumer groups, responding to lenders who were increasing the charge during the term of a mortgage.

Banks and building societies were given until today to report their stance on mortgage exit fees, which are charged by lenders to recover administration costs associated with closing out a mortgage. The FSA will publish an update on lender responses this week.

HBOS was joined yesterday by Royal Bank of Scotland, the owner of NatWest, which said that it would cut its £225 exit fee, and Standard Life, which cut its £200 fee. Lloyds TSB, Northern Rock and Cheltenham & Gloucester have also abandoned their exit fees.

However, Alliance & Leicester, which charges the most at £295, is keeping its exit fee. The bank has promised not to increase the fee during the term of the mortgage.

Mortgage lenders who keep the charge will be required to justify it against the real cost of closing a mortgage. Where fees appear exorbitant compared with the rest of the market, the FSA will ask for an explanation.

HBOS, which has about a 20 per cent share of the UK mortgage market through its five brands, including the Halifax and Bank of Scotland, said that existing customers would have to pay the mortgage exit fee quoted on their mortgage agreement. Borrowers who take out a mortgage from today will not be charged an exit fee.

One analyst said that HBOS may try to recover the costs of cutting its fee through upfront charges or interest rates on mortgage loans.