Has anyone known ERC charges to be waived or reduced?

henrik1971

I've had mortgages with Halifax for 14 years, the most recent one has about 19 years left to run, but when my last fixed rate deal ran out in June 2008, I was caught at a kind of financial microclimate with deals disappearing fast and the SVR rising almost weekly. Fearing a BOE base rate rise and any good deals becoming non-existent, I took the plunge and fixed for 3 years at 5.99.

Now of course, this is looking distinctly expensive. The mortgage is around £93,000 and I have a LTV of about 70%.
If I want to change now the ERC is £1860, which is do-able. I have a top-notch credit rating, an income of £37k, so am looking at the ING tracker deal at 2.29 above base, with a pay rate of 2.79.

Of course, no-one knows what the base rate might do, but a reasonable guess would be it would stay low until late next year, and then start creeping up. Practically speaking even if the base rate crept up to 2 or 3%, the pay rate would still be less than my current rate, so I'm reasonably confident the savings from switching will outweigh the ERC over the next 12 months. Beyond 12 months, the savings could really start to make a difference.

My question is, if I go to Halifax and explain the situation to them, do you think they might "do a deal" (reduce the ERC amount to say £1k - or even waive it completely) to get me to stay with them? If they are even mildly pragmatic about continuing to make money out of me, then it make sense for them to do it.
Even if it was just to go back on to their SVR of 3.5% - that would be a decent saving. If they won't negotiate then I'll prob switch to someone like ING or First direct. Bear in mind I have been a customer with Halifax for donkeys years and have current account, savings account, credit cards, etc.etc. with them too.
Has anyone heard of any mortgage lenders exercising discretion over matters like this when it comes to ERCs?

opinions4u

henrik1971 wrote: »

I've had mortgages with Halifax for 14 years, the most recent one has about 19 years left to run, but when my last fixed rate deal ran out in June 2008, I was caught at a kind of financial microclimate with deals disappearing fast and the SVR rising almost weekly.

SVRs weren't rising "weekly" at that point in time. Deals do tend to change with regularity.

My question is, if I go to Halifax and explain the situation to them, do you think they might "do a deal" (reduce the ERC amount to say £1k - or even waive it completely) to get me to stay with them?

No chance. They are committed to paying their wholesale funders the high rate. So why would they want to switch you to a low rate to make less money out of you?

If they are even mildly pragmatic about continuing to make money out of me, then it make sense for them to do it.

No, it doesn't. They would make a loss by doing so. There is nothing in it for them.

If they won't negotiate then I'll prob switch to someone like ING or First direct.

It is probably in their interests for you to do that.

Bear in mind I have been a customer with Halifax for donkeys years and have current account, savings account, credit cards, etc.etc. with them too.

While you may well be the ideal customer, I would hazard a guess that any profits they make from your other products are tiny in relation to the profitability of the mortgage.

I would guess that they are paying their wholesale funders around 4.25%-4.5% for the money they lent you. That commitment would remain in place for Halifax if they switch you to a 3.5% SVR. Why would any commercial enterprise do something so stupid as to turn a product that makes a profit of, say, £1,500 a year in to one that loses them £1,000 a year?

henrik1971

opinions4u wrote: »

SVRs weren't rising "weekly" at that point in time. Deals do tend to change with regularity.

You're right, they weren't literally rising weekly, I was just trying to convey that it was a turbulent time.

No chance. They are committed to paying their wholesale funders the high rate. So why would they want to switch you to a low rate to make less money out of you?

Because they would still be making money out of me, rather than no money at all?

No, it doesn't. They would make a loss by doing so. There is nothing in it for them.

I don't think they would make a loss - just slightly less profit.

It is probably in their interests for you to do that.

Why? (see my next response)

While you may well be the ideal customer, I would hazard a guess that any profits they make from your other products are tiny in relation to the profitability of the mortgage.

They have our savings to lend out at a big profit over the low saving rate they pay me. They also make a decent cut on these crazy current account daily overdraft charges. They also make a decent margin on my credit card balance.

I would guess that they are paying their wholesale funders around 4.25%-4.5% for the money they lent you. That commitment would remain in place for Halifax if they switch you to a 3.5% SVR. Why would any commercial enterprise do something so stupid as to turn a product that makes a profit of, say, £1,500 a year in to one that loses them £1,000 a year?

Again, because they would continue making money out of me for the next 19 years. If I leave they only get the ERC, and nothing else. Ever.
I would have thought a "commercial enterprise" would see the sense in a short term small cost for a long term income stream. Also, I would've thought banks would prefer to keep their best, long term, most stable and credit-worthy customers.

opinions4u

On the mortgage product alone they would make a significant loss over the next 2 years.

I would hazard a guess that the lending margin on your savings will be tiny in comparison to that loss (although I don't know your balance / rate). Being overdrawn for a few days a month will only start generating profit on a Reward account if your overdraft is tiny and your time overdrawn exceeds 7 days a month. Credit card margins are high, but so are write-offs.

I'm plucking figures from thin air here but:

- Allowing you £93k mortgage to go to SVR will lose them £1,000 a year.
- £3,000 in savings at 2.5% will probably net them £30 a year in profit.
- A current account overdrawn for 8 days a month will probably net them £30 a year profit.
- A £1,000 credit card balance on a well conducted account at 15.9% will probably make them £120 a year.

It makes little sense to fight for this sort of custom at the moment. It makes more sense to pocket the ERC and let you go as it could take several years to turn a profit out of the overall relationship.

The key driver here is the cost of the wholesale funding that provided your mortgage. They're stuck with the cost of it. Hence your ERC.

_Andy_

Whether the OP thinks it's not a sensible decision on the part of the lender or not, Halifax won't reduce the ERCs by so much as a penny.

henrik1971

Fair enough. I'll see what they say.

I didn't appreciate that the wholesale parcel of £93k they lent me last summer is compartmentalised at the rate you mentioned and can only be repaid by them receiving my mortgage payments over the remaining two years of my fixed rate deal.

I kind of thought that they would operate like we all do - targeting available funds at their most expensive debts, like this one (at say 4.25%), so when other mortgage customers on lower rates overpay, the lender uses those funds to pay off their wholesale debts - highest rates first on parcels of debt like the one they obtained for me.

henrik1971

_Andy_ wrote: »

Whether the OP thinks it's not a sensible decision on the part of the lender or not, Halifax won't reduce the ERCs by so much as a penny.

I suppose you could be right. I was reading Martin's latest remortgaging guide, and he suggests in there on page 10 that lenders may be prepared to accept a reduced ERC to switch people onto a better deal.
If his comment is pure speculation with nothing to back it up - no problems. I just thought there may be some truth in it, so was checking to see what people on the forum thought - or if they had heard of anyone achieving this.

opinions4u

henrik1971 wrote: »

I was reading Martin's latest remortgaging guide, and he suggests in there on page 10 that lenders may be prepared to accept a reduced ERC to switch people onto a better deal.
If his comment is pure speculation with nothing to back it up - no problems.

There have been lenders reducing / removing ERCs and even reducing mortgage capital balances.

These have been businesses that have a significant funding gap (i.e. they have more lent out on mortgages than they have been able to raise on the wholesale markets).

They have been actively trying to get mortgage customers to go elsewhere becuase they would otherwise be trading insolvently. Indeed, some are already in administration and are trying to wind down their business as quickly as possible.

dunstonh

I was reading Martin's latest remortgaging guide, and he suggests in there on page 10 that lenders may be prepared to accept a reduced ERC to switch people onto a better deal.

There was a period when some sub prime/high risk lenders were effectively paying people to leave to reduce their liabilities. There has only been one person who has posted on the forums saying their ERC was reduced on a mainstream lender but many of us doubt that was the case.

kmmr

I agree with the comments above that banks can't fund their loans at the base rate (and in fact regulators will no longer allow them to), so you can't really expect them to price their lending based on this much more. And remember they have hedged your fix rate loans (again, as required by the regulator) so the ERC should broadly reflect the cost of the bank breaking the hedge. In Australia they actually do the formal calculation, so you only know your ERC as you break.

However, regardless of that, you should still do what is best for your financial situation!

I'd suggest you do a pure financial calculation and see if it is worth it to you. Work out how much you would pay between now and the end of the fixed term on the higher rate, and how much on the lower. If the difference is greater than the ERC, then maybe go ahead and do it.

So - say you have 18 months left:

£93k x 5.99 x 18months = £8356
£93k x 2.79 x 18 months = £3892

So - you save £4464, or £2604 after the ERC.

If you just go to their SVR (and accept the ERC, if that is allowed) then:

£93k x 3.5 x 18 months = £4822
£3534, or £1674 after you pay the ERC.

Of course you may have other costs, and the base rate may well rise. But if you want to move from the security of fix to the (perhaps illusiory) benefits of the low SVR, then it might be worth it.


2.79
3.5
1860

henrik1971

Just as an update, I made an appointment yesterday, and went in for it today.

As you all predicted, they were totally stoney faced. I didn't press matters as there seemed little point, but the upshot was they wanted the 1860 to redeem, plus another 1250 to put me on a new product (their tracker), so at over 3100 in total, I don't think I'll be doing it. I could put my hands on 3k, but I guess I would be better to use it either to overpay my mortgage, or stick in a high interest account and bide my time.

One final thing though, they said they wouldn't let me pay the 1860 to end the deal early UNLESS I paid to go onto another deal. I guess they know what they're talking about, but seems pretty draconian to me. Is this a standard term when you take a product like a fixed rate? If it is, I'm glad I found out now, so I'm aware of it in the future.