Nationwide Changes it's ERP's. Check your quotes !!

AndrewSmith

LENDING CRITERIA NEWS
11 July 2006

From 13 July 2006 Nationwide is simplifying its early repayment charges

In summary

The early repayment charges for Nationwide's fixed rate and tracker rate products are changing. From 13 July 2006 a flat percentage of the entire overpayment amount will be charged across the deal period. This will make it simpler for you to explain early repayment charges to your clients.





What you need to know:

• Early repayment charges are set at the start of the mortgage term and remain flat throughout the deal period
• Should your client repay their loan or make an overpayment of more than £500 per month within the initial fixed or tracker term, or within the first 5 years of a Lifetime tracker, an early repayment charge will be payable on the entire overpayment amount. The percentage charge payable is detailed in the table below:

Deal Term Percentage Payable
2 years 1.5%
3 years 2.0%
5 years 3.0%
10 years 3.0%
Lifetime 3.0%


Where customers have been issued with a KFI prior to 13th July and not yet reserved a product, please ensure that you issue a revised KFI reflecting the new ERCs.




Anyone applying currently for a Nationwide AIP, make sure that the quote you are given when the full mortgage application is submitted is correct with the above Early Redemption Penalties.

My own view is that, compared with their old charges of a sliding scale getting smaller towards the end of the deal, is that you would only be at a disadvantage should you look to pay the mortgage off in the very latter years of the deal. This is quite a hefty change from the old way though on some deals.

It certainly will make it easier for customers to understand what is payable at what point for early redemption, however does ensure that you are tied for the full deal duration.

Thought's anyone?

Andy

lowis

i'm just going through the process of getting a mortgage with nationwide - well, i have the mortgage, they have agreed to lend subject to survey and they sent the surveyor around yesterday.

my ERC's on the paperwork are 3/2/1% for a three year fix on an IO mortgage. will this still apply? or will the new rates replace the ones on my paperwork? if so, it seems i will have to pay more in ERCs should i switch in year 3 of the fix - but will be liable for less should i switch in years 1 and 2.

AndrewSmith

lowis wrote:

i'm just going through the process of getting a mortgage with nationwide - well, i have the mortgage, they have agreed to lend subject to survey and they sent the surveyor around yesterday.

my ERC's on the paperwork are 3/2/1% for a three year fix on an IO mortgage. will this still apply? or will the new rates replace the ones on my paperwork? if so, it seems i will have to pay more in ERCs should i switch in year 3 of the fix - but will be liable for less should i switch in years 1 and 2.

Hi,

Yes you will still be on the old rates as your funds will have already been booked, and the mortgage offer will reflect the terms & conditions that applied when funds were booked.

Your existing quote will stand.

Andy

Woby_Tide

overall looks bad IMO, I thought there old way was fairer i.e. if you wanted to jump early for whatever reason i.e. 6 months before end of deal it was only 0.5% say, only advantage now seems if you want to get out in early stages of a long term fix or tracker that you win

Joe_Bloggs

If mortgage brokers have trouble explaining 321 or 54321 then there is something wrong with the client or the broker! The alleged reasoning behind the change stinks. The old system was proportionate the new system is not. They should expect some FSA and consumer pressure to justify this change.
It is strange that this new condition was introduced days before the end of voting for AGM proposals.
J_B.

jamesd

It looks like a contractual penalty charge in excess of the cost involved. Unless the lender can support the significant increase in its costs. Have the ERCs been reduced in the early years, so this is just a shifting of cost from the start to the end?

Regardless, it looks like a reason to disfavor this lender, since it decreases the product flexibility.

MortgageMamma

Agreed I think it stinks too. I think the sliding scale was much better for the client. This will be a reason I hesitate to recommend nationwide from now on. I can't see how this benefits the customer whatsoever, just keeps clients tied to the lender for longer. I also think their stance on overpayments need to change.

TangentMan

Well, its difficult to argue it isn't simpler. Whether or not their previous ERC system was complicated is a different matter.

It looks to me like they simply want to ensure they make their margin over the preferential period. Other lenders have similar "simple" ERCs.

Clearly an ERC is an incentive to the customer to see out the preferential term, but it is not in any way unfair. Its just part of the product and this change possibly makes it less competitive than it used to be.