Mortgage Early Redemption charges

35moss

Using the strategies of reclaiming unfair bank charges on this site, I asked the Halifax to tell me what the two mortgage exit charges were for (Admin and Deeds dispatch). They replied they "they didn't know". It took me six months, 5 letters and about 10 phone calls, but they have just repaid me the £225.00. I did ask them to give me a copy of the paperwork where I agreed to these charges, and they were unable to. I do recall that when I signed up they only asked for one charge, so this might not apply to everybody, but if you've had a mortgage for a few years it is wothwhile checking.

Edinburghlass_2

Good news, I'll merge your post with a thread asking about this very thing.

thecornflake

A bit of clarification as far as people claiming these back see it -

When you end a mortgage early you are breaching the contract. In exactly the same way as you are when you incur a failed dd or overlimit charge from a bank or credit card.

Regardless of what is in the T&Cs UK contract law overrides them - a contract that says you can punch someone in the face doesn't make it legal.

They can only legally take the cost to them of you cancelling your mortgage, and this DOESN'T include lost profit from all those payments and interest they will no longer get from you.

So they can only take back the admin costs of closing the mortgage and taking your settlement payment - this can be argued of course but is probably £5 at the most to cover a couple of letters and a money transfer.

This is the basis for these claims, and so far all of the ones I've read about have been successful. However who knows what will happen once it grows - like someone said earlier this is the entire basis for short-term preferential rates and without ERC (early redemption charges) there is no point in having them from the bank's point of view.

This would also be covered by the 6 year rule, although we could use the deception argument to try and go back further.

Hopefully this makes things a bit clearer as to why people are able to claim ERCs (and exit fees or whatever the bank wants to call them) back.

alex_h_6

Hi would this principle of unfair charges also apply to imposed costs for the paperwork at the end of a mortgage term?

Alex

mountainofdebt

Alex

Have followed you over from the mortgage board as we are in exactly the same position.....not with abbey are you per chance?

The difference with us is that we have just paid to Abbey a sum of money that equates to the remaining balance so I was curious what would happen if we decided to nothing.....would that mean effectively Abbey are holding our deeds for nothing?

The other thing I thought of doing was asking them to jusify the cost, and hopefully after a few letters, they would get tired and just send me the deeds.

let me know how you get on !

wsanderson

I'm going to pay off my Brittania variable rate mortgage off 12 years early with a lump sum soon. Will I get a redemption charge and is there a possibility of claiming it back?

nickmack

http://forums.moneysavingexpert.com/showthread.html?t=305519

Halifaxbeater

Hi, can anybody answer this question; can I reclaim a redemption penalty levied by my mortgage company?

The story is I paid off my mortage when I sold my old house, however my mortgage company charged me 1% of the redeemed amount because I failed to give them 1 months notice that I intended to redeem the mortgage.

Many thanks in advance for any help.

kingpro

Hi all,

I NEED SOME HELP HERE!!! to progress my claim with IF. I cancelled my mortgage with a matter of weeks before the end of the initial term on a 2 year mortgage and was subject to 1% redemption penalty. This has amounted to £2871.00.

I wrote the following to IF :

Request for repayment of charges

Dear Intelligent Finance,

I am writing to ask you to refund to me the ‘Redemption Penalty’ charges which you levied on my mortgage account when I settled the balance this year which were charged 3 weeks before the scheme end. I now understand that the redemption penalty fee which you applied to my account in order for me to pay off and close the mortgage is unlawful at Common Law, Statute and recent consumer regulations. If you say that they are not, then will you please demonstrate this by letting me have a full breakdown of the costs to which you have been put as a result of me paying off my mortgage with you early, in order to reassure me that your penalties really do reflect your costs?

In Common Law you can only recover liquidated losses stemming from a breach of contract - that is, money which it has actually cost you to end the contract early.

To quote The Govan Law Centre: "charges represent a penalty and are therefore irrecoverable at common law. In the Scottish case of Castaneda and Others v. Clydebank Engineering and Shipbuilding Co., Ltd. (1904) 12 SLT 498 the House of Lords held that a contractual party can only recover damages for actual or liquidated losses incurred from a breach of contract. This is also the position in English law: Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79."

I would draw your attention to the two following paragraphs which are an excerpt from the Office Of Fair Trading website:

A term in a mortgage agreement which requires the borrower to pay more for breaching the contract terms than actual costs and losses caused to the lender by the breach (or a genuine pre-estimate of that) is likely to be regarded as an unfair penalty and to be unenforceable both at common law and (in a consumer mortgage) under the Unfair Terms in Consumer Contracts Regulations.

A redemption charge may be regarded as a penalty even if it is expressed as the price for exercising a right rather than a consequence of breaking the agreement.

Your responsibilities

I would draw your attention to the terms of the contract which you agreed to at the time that I opened my account. It is an implied term of that contract that you would conduct yourselves lawfully and in a manner which complies with UK law.

I am frankly shocked that when I settled my mortgage with you, you operated my account in this way as I had always reposed confidence in your integrity and expertise as my fiduciary.

I consider that your contract suggested that your redemption penalty charges are fair, legal and reasonable are deceptive and that they have deceived me into agreeing to pay them. Your concealment of the true nature of your charges has prevented me from asserting my right until now.

What I require

I calculate that you have taken £2538.70 in redemption penalty charges, which I paid at the time I settled my mortgage with you. I require you to return this sum to me.


My targets to resolve this matter

I hope that you will enter into a sincere dialogue with me about this matter and I am writing this letter to you on the assumption that you will prefer to do this than merely respond with standard letters and leaflets.

I will give you 14 days to reply to me accepting, unconditionally, my request in principle and letting me know a date by which I will receive payment.

If you do not respond, or you do not respond positively, within this time period, I shall send you a letter before action giving you a further 14 days in which to reflect. I believe that these targets are more than sufficient for a large company such as yours with dedicated staff and departments.

After that, there will be no further communication from me and I shall issue a claim at the expiry of the second deadline.

Yours sincerely
IF then wrote back to me with the following :

I refer to your letter dated xxx and thank you for your patience while I investigated the matter on your behalf.

I think it would be useful if I put forward our view of the legal and regulatory requirements, which relate to early repayment charges before considering how this applies to your complaint.

The general legal position is that someone who enters into a contract is bound by it's terms whether or not the person has read and/or understood those terms. Where the contract is with a cusumer, the consumer should be given reasonable opportunity to become aware of the terms and the terms should be in plain language. We consider that we have compiled with these obligations in respect of the requirement to pay an early repayment charge by providing you with the KFI (Key Facts Illustration) and other information referred to the above where the requirement was clearly set out and was provided before you agreed to proceed.

In your letter, you referred to the early repayment charge as a "penalty" and quoted the Office of Fair Trading (OFT) website and the case Dunlop Pneumatic Tyre Co Limited vs New Garage and Morr Company Limited. Both the material on the OFT website and the Dunlop case relate to the law of penalties. I do not consider this is relevant in the context of early repayment charges. Early repayment charges become payable during the normal course of the mortgage product where the customer seeks to exercise their right to repay the mortgage during the term of the mortgage rather than continuing to repay the mortgage over the full term of the contract. The customer is not in breach of contract and being forced to pay a "penalty" for the breach. The customer is simply repaying the mortgage on terms agreed at the outset of the contract which requires an early repayment charge to be paid if repayment takes place within a specified period of time.

I consider that it is fair for a lender to charge an early repayment charge as part of a deal in which a customer receives the benefit of a special interest rate in return for a commitment to pay an early repayment charge if the customer seeks to repay the mortgage early. This is an essential part of the pricing of the product offered because it enables the lender to recoup the loss it incurs in offering the special interest rate if the customer repays the mortgage early.

Under the FSA's rules set out in section 12 Mortgage Conduct of Business Rules, an early repayment charge should be set out in the mortgage offer and be capable of being represented as a cash value and represent a reasonable pre-estimate of the cost to the lender of the customer repaying the mortgage early.

The issue you raised was in relation to the fairness of the early repayment charge applied to your mortgage. Having reviewed your case, my findings are that a mortgage application was submitted to Intelligent Finance via telephone by xxxxxx of xxxxx (IFA) on 3rd November 2004. Upon receipt of the mortgage application from your broker, we processed it in accordance with the informationand instructions presented. The mortgage product selected was a Tracker 95% loan to value - Bank of England Base rate + 0.44% until 31 October 2006, then reverting to the standard variable mortgage rate.

Following the processing and approval of the mortgage application, a mortgage offer was issued on 24 November 2004. The documentation sent to you before you entered into the mortgage contract, for example the mortgage offer of 24 November 2004, clearly set out the terms on which the early repayment charge would be charged in plain language and gave examples, in cash amounts of how the charges would be. They were descibed as being a 2% early repayment charge if you repaid your mortgage within the first twelve moths and a subsequent 1 % charge would apply in the following twelve months.

We believe that under the general law and under the FSA regulations the early repayment charges applied to your product are both lawful and fair. The early repayment charge was clearly and properly disclosed to you before you entered into the mortgage and we also believe that the amount of the charge represented a fair pre-estimate of the cost we would incur in the event of you repaying early. We consider that a reasonable pre-estimate of the cost should be based partly in the comparison between the income we would have received if the customer repays early. There are also various set up costs of the mortgage which we consider can be factored into the calculation.

At the time we designed your product our standard variable rate was 5.95%, Bank of England base rate was 4.75% which is our funding costs. the commission rate paid to your broker for providing you with advise was 0.50% (a cost to us of £1,310), plus the cost of the valuation fee and the remortgage legal costs. Based on a loan of £262,000, the income we should have earned equates to £9,380. A 1% early repayment charge in year 2 recovered on £2871, against a combined lost interest costs of £7,074, a commision cost of £1,310, and the valuation and legal fee costs. In theory, we believe that an early repayment charge of 3% would have been permissible under the regulations.

Having reviewed your product early repayment fee structure in accordance with the regulations there are no grounds for a refund and I regret that I am unable to uphold your complaint.

I hope this clarifies everything for you, hwever, if you have any further questions relating to your complaint, please call me on xxxxxx.

yours sincerely

IF
:mad:
Now, it looks pretty bad from a claim view from my perspective. Can anyone assist in a reply to this letter. The Dunlop case does not hold weight and it appears that the bank lost money in interest, legal fees etc. with my mortgage. One of the points I have is that they would not negotiate allowing me to pay this mortgage 3 weeks early - that is UNFAIR.

Any help appreciated,:cool:

Thanks,

KingPro.

nickmack

kingpro wrote:

Now, it looks pretty bad from a claim view from my perspective. Can anyone assist in a reply to this letter. The Dunlop case does not hold weight and it appears that the bank lost money in interest, legal fees etc. with my mortgage. One of the points I have is that they would not negotiate allowing me to pay this mortgage 3 weeks early - that is UNFAIR.

You must have got this letter/procedure from the CAG website as it is not mentioned here. I suggest you go to the forums there to check out people who are reclaiming mortgage charges. The process is slightly different and more involved. One claimant has a case management hearing to discuss the points of the claim later this month with the judge and the defendants solicitors.