Early repayment penalty charges... Legal?

megaman777

Firstly, I apologise if this is a topic previously discussed within the website.

That said, this is a topic that is currently high on my list of priorities.

The recession is affecting us all, and what better way to save money than to find a cheaper mortgage deal... however the issue i have is quite simply that in order to switch mortgage provider I am expected to pay an early repayment penalty of £3100.

I only have 12 months remaining on my 5 year fixed term ( I would see the mortgage through, however I need urgent reductions in my monthly ougoings). The mortgage stands at 105,000 so the penalty charge currently works out at 3%.

Ultimately, if I have to switch, it appears I have little choice in paying this, and forking out in the long run.

However, I've tried researching the legality of such fees, and what the likelihood of a succesul recovery of them would be at small claims court.

Does anyone have any views/experience of the above. I'm not holding my breath, but I genuinely feel quite aggrieved at having to line the pockets of the banks by paying what are frankly extortionate and dis-proportionate penalty fees.

Thanks in advance.

hillcats

The thing is, it would have been in all the paperwork at the start which you have signed.
If you want out then you have to pay, and I believe that's all there is to it...

dunstonh

However, I've tried researching the legality of such fees, and what the likelihood of a succesul recovery of them would be at small claims court.

Virtually nil chance.

The charge is considered fair and legal.

I genuinely feel quite aggrieved at having to line the pockets of the banks by paying what are frankly extortionate and dis-proportionate penalty fees.

ERCs are easily justifiable and common sense. You probably feel aggrieved as you don't understand the reasons why they exist. However, your lack of understanding would not be a good enough reason to go to court.

You clearly were not aggrieved when you bought the mortgage deal and no doubt had interest rates gone up you would be angry if the lender wanted to get out without penalty in the same way you want to. So, why do you think you should be given the benefit of a special deal without the consequences?

You agree the tie in to get the deal so the lender get get investors to fund the deal. If you pull out early the lender still has to pay the investors or pay a penalty themselves. If you are not going to pay the penalty, who do you think should?

dimbo61

its not worth paying £3100 for one year so wait until the fix ends
what does the mortgage revert to ? is it a tracker or SVR
you on the debt free board for ways to save money

GMS

If interest rates were now 15% and the lender offered you £3100 to go to a 15% rate you would tell them to take a running jump.

You chose the security of a fixed rate. Rate have fallen and you now want out for free?

As dunstonh says the lender advanced you the funds for the set period having allocated that amount for that time at that rate.

If the ERC's are disclosed and agreed to by way of acceptance of the mortgage offer then they are perfectly legal.

On what grounds would you think they are not legal?

SilverSix

Can you not use the £3000 odd exit fee you'd have to stump to replace/fund the reduction you would get by switching mortgage?

shortchanged_2

dunstonh wrote: »

Virtually nil chance.

The charge is considered fair and legal.



ERCs are easily justifiable and common sense. You probably feel aggrieved as you don't understand the reasons why they exist. However, your lack of understanding would not be a good enough reason to go to court.

You clearly were not aggrieved when you bought the mortgage deal and no doubt had interest rates gone up you would be angry if the lender wanted to get out without penalty in the same way you want to. So, why do you think you should be given the benefit of a special deal without the consequences?

You agree the tie in to get the deal so the lender get get investors to fund the deal. If you pull out early the lender still has to pay the investors or pay a penalty themselves. If you are not going to pay the penalty, who do you think should?

While I agree with what your saying dunstonh there was I believe the Skipton BS who shirked on a promised capped SVR rate a year or so ago to the detriment of customers, invoking the extreme circumstances clause. This I believe was backed by the FOS which is a bit ridiculous really when these companies are allowed to get away with such behaviour. It appears to make mortgage contracts unfairly one sided.

magpiecottage

Four years into a five year deal means you would have bought the mortgage in 2007.

By that time all new applicants for mortgages were given a "Key Facts" document, which clearly stated the early repayment charges.


Whilst I agree that Skipton's approach regarding its SVR may have been unfair, that does not mean you are being treated unfairly.

Skipton will have borrowed the money at a specified rate from somebody else to lend to borrowers who wanted the security of knowing what their payments would be.

You were one of those borrowers. If you now decide you want to get out, they will still be contractually bound to pay the interest to whoever they borrowed it from. So they have three choices:

1) Reduce the amount they pay to their savers to meet the costs of your change mind;
2) Increase the amount they charge other borrowers to meet the costs of your change of mind;
3) Charge you the costs they incur as a result of you changing your mind.

The FSA has 11 principles that firms must follow. Principle 8 requires it to manage conflicts of interest between it customers fairly. Of the three options available, only the third complies with that principle.

It is NOT that Skipton has treated you unfairly (regardless of what it has done for other customers) it is that you want it to treat other customers unfairly in order that you may take advantage of a fall in interest rates that you did not anticipate.

If Skipton has any sense, it will argue that the fee is an exercise of commercial judgement and therefore outside FOS jurisdiction.

The benefits of going to the small claims court? Well you will get a trip to the Yorkshire Dales as they will almost certainly want it to be heard locally but it would be cheaper to simply book a B&B and go somewhere a little more picturesque - I remember Prince Charles once bemoaning the ugliness of Skipton Building Society's Head Office!

shortchanged_2

magpiecottage wrote: »

Four years into a five year deal means you would have bought the mortgage in 2007.

By that time all new applicants for mortgages were given a "Key Facts" document, which clearly stated the early repayment charges.


Whilst I agree that Skipton's approach regarding its SVR may have been unfair, that does not mean you are being treated unfairly.

Skipton will have borrowed the money at a specified rate from somebody else to lend to borrowers who wanted the security of knowing what their payments would be.

You were one of those borrowers. If you now decide you want to get out, they will still be contractually bound to pay the interest to whoever they borrowed it from. So they have three choices:

1) Reduce the amount they pay to their savers to meet the costs of your change mind;
2) Increase the amount they charge other borrowers to meet the costs of your change of mind;
3) Charge you the costs they incur as a result of you changing your mind.

The FSA has 11 principles that firms must follow. Principle 8 requires it to manage conflicts of interest between it customers fairly. Of the three options available, only the third complies with that principle.

It is NOT that Skipton has treated you unfairly (regardless of what it has done for other customers) it is that you want it to treat other customers unfairly in order that you may take advantage of a fall in interest rates that you did not anticipate.

If Skipton has any sense, it will argue that the fee is an exercise of commercial judgement and therefore outside FOS jurisdiction.

The benefits of going to the small claims court? Well you will get a trip to the Yorkshire Dales as they will almost certainly want it to be heard locally but it would be cheaper to simply book a B&B and go somewhere a little more picturesque - I remember Prince Charles once bemoaning the ugliness of Skipton Building Society's Head Office!

I'm not 100% sure what you are getting at magpiecottage.

I don't know if you think that I had/have a Skipton mortgage because I don't. I was just making a point that while I agree that there is no way that the OP can get out of the ERC for their mortgage, I was just making a point that sometimes contracts can be unfair as in the case of the Skipton breaking their promise on a capped rate deal.

What I suppose I am saying is that yourself and dunstonh rightly so highlight the risk to the bank etc and if the interest rates were really high then the OP would not be whinging. However as I am saying it is double standards though when the Skipton shirks on a deal because interest rates go too low for them. Seems a little unfair to me.