Early Redemption Fee

Thrugelmir

magpiecottage wrote: »

I disagree - FOS will look at what is fair and reasonable in the first place.

Almost certainly if the lender has received all the interest that the borrower contracted to pay within the fixed rate period the lender will not have lost out (and possibly gained as they have the use of it for a week or two more than they expected. Therefore any additional amount would constitute a penalty.

I would anticipate a complaint being upheld. However, if the OP raises it with the lender now it is unlikely to get that far.

The lender has not received all the interest due. If the contract is for a 36 month period commencing on 1st June. Then the expiry date of the contract is the 31st May. If the contract is terminated prior to the 31st May then the lender is within their rights to impose the penalty clause as stated.

Engeroosi

Is the person buying the property in a chain or FTB? If they are in a chain in could be more complicated, if not then it will save them money on mortgage payment for May and also if you offer them a small discount to delay until June that will compensate for the inconvenience of having to wait to move into their first/new home.

rather than get bogged downs on whether it is legally correct or whether your getting ripped off, look at a way of avoiding the problem. Last thing you need when moving house is having the hassle of a legal battle or dispute with the bank.

Malky

My 5 year fixed was taken out on 2nd June 2006 but the first payment wasn't taken until 2nd July 2006. This means my current deal won't end until late June this year. When did you make your first payment? June or July?

kingstreet

Malky wrote: »

My 5 year fixed was taken out on 2nd June 2006 but the first payment wasn't taken until 2nd July 2006. This means my current deal won't end until late June this year. When did you make your first payment? June or July?

That isn't necessarily the case. If your mortgage offer says fixed for five years from completion, that is what counts. The payment dates would have no relevance as some lenders charge payments in advance, others in arrears.

If your mortgage offer says it's fixed until 2 June 2011, then it's fixed until June 2 2011.

kingstreet

Nationwide currently has a five year fix at 5.39%. Its early repayment penalty reads;-

5% of loan to be paid within first 5 Years

Britannia has a fix at 5.49% until 31/7/2016 and the accompanying penalty clause reads;-

5% of loan to be paid until 31/07/2012, Then 4% of loan to be paid until 31/07/2013, Then 3% of loan to be paid until 31/07/2014, Then 2% of loan to be paid until 31/07/2015, Then 1% of loan to be paid until 31/07/2016

So a lender with a fix for a period of time will take that time from the completion date of the mortgage. One with a fixed end date will use that end date as the expiry for the penalties.

The timing of payments is not a consideration. Check what your mortgage offer says.

DVardysShadow

Thrugelmir wrote: »

The lender has not received all the interest due. If the contract is for a 36 month period commencing on 1st June. Then the expiry date of the contract is the 31st May. If the contract is terminated prior to the 31st May then the lender is within their rights to impose the penalty clause as stated.

It would be adequate compensation to pay the bank the final month's interest [while they still hold security on the property. This would compensate them in full for maintaining the hedging. Any charge beyond this is truly a penalty and quite unreasonable.

opinions4u

DVardysShadow wrote: »

It would be adequate compensation to pay the bank the final month's interest [while they still hold security on the property. This would compensate them in full for maintaining the hedging. Any charge beyond this is truly a penalty and quite unreasonable.

Based on that logic a saver with a 2 year term deposit should be entitled to withdraw at month 23 without paying a withdrawal free, even if the T&Cs of the account confirm a charge is due.

The customer bought a mortgage product where the ERC clause will have been clearly documented. While some lenders may indeed have a "good sense" clause in the last 3 months there is no requirement for them to do so.

Asking the customer to fulfil their side of an overtly stated clause is not unreasonable.

DVardysShadow

opinions4u wrote: »

Based on that logic a saver with a 2 year term deposit should be entitled to withdraw at month 23 without paying a withdrawal free, even if the T&Cs of the account confirm a charge is due.

Then you have not grasped the logic.

In your scenario, the bank is down by the withdrawal for a month compared to an end of term withdrawal. There is an observable loss, so a withdrawal fee is reasonable

In my scenario, the bank is up by the borrowed money for a month and gets the monthly repayment for the missing month, so they suffer no observable loss.

magpiecottage

Thrugelmir wrote: »

The lender has not received all the interest due. If the contract is for a 36 month period commencing on 1st June. Then the expiry date of the contract is the 31st May. If the contract is terminated prior to the 31st May then the lender is within their rights to impose the penalty clause as stated.

No - it depends whether the interest is paid in advance or arrears but, at worst, the lender has received 35/36 of the amount the OP agreed to pay. If they pay the additional 1/36 (i.e. one month's interest) then the lender has not lost out.

To seek more than that is disproportionate and means the contract which the lender has drafted has an imbalance that is detrimental to the borrower. FOS will normally conclude that such an imbalance is unfair within the Unfair Terms in Consumer Contracts Regulations 1999 and decide in favour of the borrower.

These regulations, and FOS decisions, take precedence over contractual commitments.