ERCs.... the second 'collar'

Alan_Cross

My lender has a policy of allowing only 10% capital repayments in any one calendar year on fixed rate mortgages. Any further payments would trigger swingeing 'early redemption charges'. I gather this is not uncommon.

I wonder how much profit is made via this fairly tawdry strategy. The lenders try to have it both ways with their English. What they allow, they call an 'overpayment', what they don't is allegedly an attempt to 'redeem' the mortgage.

With many people in my position happy, indeed eager, to pay off their mortgages as quickly as possible in times like these, this shabby situation amounts to another 'collar' in all but name.

dunstonh

Any further payments would trigger swingeing 'early redemption charges'.

Why "swingeing"?

I wonder how much profit is made via this fairly tawdry strategy.

They were thinking of their profit in the same way you were thinking of yours when you bought the deal.

The lenders try to have it both ways with their English.

Sounds like you are trying to have it both ways as well.

With many people in my position happy, indeed eager, to pay off their mortgages as quickly as possible in times like these, this shabby situation amounts to another 'collar' in all but name.

You were no doubt happy to buy a deal that was in your best interests and accept the tie in that went with that but now you want to break that contract with no penalty to yourself. You cant blame the bank for imposing the charge. Especially as the funding for many of the deals involving tie in periods means that any early repayment means they suffer a penalty themselves when repaying the investors.

dimbo61

All you have to do is reduce the term of your mortgage from say 25 years to 20/15 years IF YOU CAN AFFORD TO OVERPAY EACH AND EVERY MONTH !
if times get tough just increase the term.
Some lenders allow you to do this for nothing ( Mine charged me £50)

opinions4u

Alan_Cross wrote: »

My lender has a policy of allowing only 10% capital repayments in any one calendar year on fixed rate mortgages. Any further payments would trigger swingeing 'early redemption charges'. I gather this is not uncommon.

Very common. Some restrict you to £500 a month. Some don't allow any. Swingeing is a somewhat unfair word to use. You agreed to the deal offered afterall.

I wonder how much profit is made via this fairly tawdry strategy.

None. They lose money. They remain committed to their wholesale funders for the full amount. You pay off a chunk, reducing the interest that they can charge, but they still have to pay the interest on their commitments.

The lenders try to have it both ways with their English. What they allow, they call an 'overpayment', what they don't is allegedly an attempt to 'redeem' the mortgage.

They do allow you to redeem the mortgage. If you pay the ERC you agreed to originally.

With many people in my position happy, indeed eager, to pay off their mortgages as quickly as possible in times like these, this shabby situation amounts to another 'collar' in all but name.

So you expect the lender to stick to their side of the terms and conditions, but you don't feel that you should do the same?

Who's shabby?

Alan_Cross

Nice to see that these worthy lenders have so many people eager to rush to defend their enforcement of the petty small print...

... but does one by any chance detect the vague whiff of financial self-interest emanating from these same defenders? No brokers among them, of course, heaven forfend, who would not want to upset the cosy little cartel which generates a whole industry of kickbacks and commissions by separating the lenders and the lended-to with a whole, totally unnecessary layer of laptop-toting spongers...?

As Martin would put it, yes, all bank account holders 'agreed' to the bank charges in the small print when they signed up.... BUT....

dunstonh

Nice to see that these worthy lenders have so many people eager to rush to defend their enforcement of the petty small print...

The banks have a lot to answer for in a number of areas but this is not one of them. Its not small print either. You knowingly entered into the terms. You cant miss the tie in period.

... but does one by any chance detect the vague whiff of financial self-interest emanating from these same defenders? No brokers among them, of course, heaven forfend, who would not want to upset the cosy little cartel which generates a whole industry of kickbacks and commissions by separating the lenders and the lended-to with a whole, totally unnecessary layer of laptop-toting spongers...?

An IFA not a mortgage adviser. I get no kickbacks of any sort. However, I know how the pricing system works. You clearly do not and rather than understand the workings you chose to remain in ignorance and act ignorant so you can carry on your ranting.

As Martin would put it, yes, all bank account holders 'agreed' to the bank charges in the small print when they signed up.... BUT....

Not the same thing. Bank charges are a penalty. ERCs are a contract event designed to recover charges and costs incurred when you breach the contract.

dimbo61

I dont work in the finance industry
I have given you a good way of avoiding ERC charges
I want to be Mortgage free asap and pay as little interest as possible
I am offended by what you have said Alan

opinions4u

Alan_Cross wrote: »

Nice to see that these worthy lenders have so many people eager to rush to defend their enforcement of the petty small print...

They offer you a rate with certain conditions. You can choose to take it or leave it. These ERCs are plastered all over the lenders' web sites where they are promoting the products. If you choose to close your eyes then is the lender being unfair?

... but does one by any chance detect the vague whiff of financial self-interest emanating from these same defenders?

I am an ex-bank manager. I suppose some residual shareholdings left from those days could do with a boost, but I doubt very much my utterings on here will help to deliver that.

No brokers among them, of course, heaven forfend, who would not want to upset the cosy little cartel which generates a whole industry of kickbacks and commissions by separating the lenders and the lended-to with a whole, totally unnecessary layer of laptop-toting spongers...?

I have never been an intermediary. But it is clear from some of the posts on here that there is an army of inidivuals who need professional mortgage (or wider financial) advice. If left to choose their own lender many would walk straight in to the wrong deal that could cost them several thousand pounds over the next few years. A few hundred pounds of "kickback" between lender and broker can save that.

As Martin would put it, yes, all bank account holders 'agreed' to the bank charges in the small print when they signed up.... BUT....

A slight aside but as you mention it ... it's amazing how many customers will get clobbered for "unfair" bank charges ... and then repeat the same financial stupidity again and again and again. We've all read about people claiming back £thousands in bank charges. Regardless of the fairness of the charges or otherwise an individual building up such a huge amount in charges, albeit over an extended period of time, is not exactly managing their money.

Alan_Cross

Methinks.... as would any totally disinterested, unbiased observer... that there is an awful lot of 'protesting too much' going on here...

I wonder where the lawyers sit on the arcane distinction between 'penalty' and 'contract event'...?

... or is this, I wonder further, yet another example of financial doublespeak, chosen as the case requires to promote one's own take on things..?

It would NOT kill the lenders in these extraordinary times to allow some flexibility on the issue of these ERCs. Not to do so is short sighted both in terms of the industry's already hopeless reputation with its customers and, frankly, its own self-interest from the aspect of those same customers' ability to repay in future.

Never mind... I keep forgetting I'm dealing here with financiers. You know...the same worthies who brought us 'Nightmare on Economy Street'...

Thrugelmir

Alan_Cross wrote: »

Methinks.... as would any totally disinterested, unbiased observer... that there is an awful lot of 'protesting too much' going on here...

I wonder where the lawyers sit on the arcane distinction between 'penalty' and 'contract event'...?

... or is this, I wonder further, yet another example of financial doublespeak, chosen as the case requires to promote one's own take on things..?

It would NOT kill the lenders in these extraordinary times to allow some flexibility on the issue of these ERCs. Not to do so is short sighted both in terms of the industry's already hopeless reputation with its customers and, frankly, its own self-interest from the aspect of those same customers' ability to repay in future.

Never mind... I keep forgetting I'm dealing here with financiers. You know...the same worthies who brought us 'Nightmare on Economy Street'...

Why? The contract was clear at the outset. You need to accept that it was your choice, no one coerced you into signing. You should have choosen a different more suitable product at the outset.

opinions4u

Alan_Cross wrote: »

Methinks.... as would any totally disinterested, unbiased observer... that there is an awful lot of 'protesting too much' going on here...

You were the one doing the protesting.

I wonder where the lawyers sit on the arcane distinction between 'penalty' and 'contract event'...?

Safely on the side of the mortgage contract I would say. Which both lender and borrower are party to.

... or is this, I wonder further, yet another example of financial doublespeak, chosen as the case requires to promote one's own take on things..?

No. It's a pretty straight forward thing.

Here's a link to a major lender's web site. It clearly mentions the ERC clause for the products marketed (e.g. "3% to 31/10/2010 2% to 31/10/2011"). Doublespeak? Don't talk tosh.

It would NOT kill the lenders in these extraordinary times to allow some flexibility on the issue of these ERCs.

Some of the lenders have been pretty close to death recently. Why should they stick a final knife in to themselves just because you think sticking to your side of a deal is unfair?

Not to do so is short sighted both in terms of the industry's already hopeless reputation with its customers and, frankly, its own self-interest from the aspect of those same customers' ability to repay in future.

I don't understand the highlighted bit. To be honest, giving hundreds/thousands of pounds to a handful of borrowing customers, which would presumably have to be paid for by existing savings rates being reduced or future borrowing rates increased seems totally wrong to me.

Never mind... I keep forgetting I'm dealing here with financiers. You know...the same worthies who brought us 'Nightmare on Economy Street'...

Oh dear, you've gone from a bizarre self interest point of view to blaming 3 or 4 people on a message board for the credit crunch and crap lending by corporate bankers (many of whom were Dutch or Scottish) and a woefully inept FSA that was too intererested in making sure you get 14 pages of paper with an insurance quote to realise the world was going to be turned upside down. Not to menton a Government who's already excessive borrowing left them no "rainy day" money when the heavens opened.