Early redemption charges & hardship

vicjay

All the discussion I have read so far about avoiding Early Repayment Charges has been about whether or not they are fair/legal, etc, but I would like to know if building societies/banks are ever prepared to be flexible when early redemption is a result of changed circumstances caused by hardship. My daughter and son-in-law are in a situation where they have to sell their house and move into rented accommodation. He has been made redundant and she is self-employed but making next to no money. They want to start up a business together and an opportunity has come up far from where they live. Their only option is to sell their house, but this will involve a huge early redemption charge - a lot more than my son-in-law's redundancy payment.Their lender is the Alliance & Leicester and they are quite willing to take a mortgage with them again when they are in a position to be able to. I doubt that the Alliance & Leicester would be losing money as the mortgage has been fixed way above the base rate for nearly 3 years. What are their chances, if not of waiving the charges at least of having them reduced?

Thrugelmir

By signing a contract one accepts the terms and conditions. A borrower cannot have both the security of fixed repayments and the option of exiting with no penalty when they wish. So the ERC will not be waived or reduced.

In a simplistic answer to your point. Banks do not fund mortgages with deposits paying interest at base rate. Mortgage books are actually very complex with a myriad of lending and borrowing rates at any given point of time.

holly_hobby

Some lenders may choose to refund (either wholly or partly) applied ERC, if a new mortgage is effected with them within 3-6 mths of redemption (YBS kindly used to offer this facility). Is this an possibility ?

Other than that possible option, Thurls. has given you as it is I am afraid.

Hope this helps

Holly

opinions4u

I doubt that the Alliance & Leicester would be losing money as the mortgage has been fixed way above the base rate for nearly 3 years.

But banks don't raise their money at base rate. Most fixed rate funds for new lending were raised wholesale. So unfortunately A&L / Santander are almost certainly still paying a high fixed rate to their funders for this money.

So a borrower breaking the contract still leaves them with high cost funds to maintain which will potentially leave them with a significant loss.

They can ask, but I don't think they'll get.

DannyboyMidlands

Surely this is something they would have considered when signing up for the mortgage? How did they originally plan to deal with the ERC?

vicjay

Thank you for the replies that were helpful and well intentioned. I didn't appreciate the fact that banks fund mortgages at much higher interest rates. Taking another mortgage in the short term is not a possibility as they will have no evidence of earnings from their new venture for several years. Asking how they originally planned to deal with the ERC is not helpful. I'm trying to find a way to help a young family who have found themselves in a very difficult situation and a lack of foresight puts them in good company. The whole of Europe is in a financial mess as a result of much more stupid behaviour by some of its best political and financial brains.

DannyboyMidlands

I was just wondering whether there was initially a plan that's all. I mean it's not like the ERC is a big surprise, it would have been there in black and white from day one.

alexlyne

If there is equity in the house, then they can afford to pay the ERC from that once they sell? I assume that there is equity as without that then selling would be difficult.
It's not ideal if they want to scrape as much together as they can for starting a new company, but as said, it's a contract they entered in to.

KarenBB

I've no experience of A&L but Ithink it's highly unlikey they would not charge the ERC for all of the reasons already given.

Howmuch longer are they tied in for? Would it be possible to let out their house until the end of the ERC tie in? as mentioned no idea if this is something A&L/ santander would do but just looking for another direction. Even if the rent didn't cover the mortgage completely the overall loss may be less than paying the ERC

vicjay

There is enough equity in the house to pay it, but you're right, every penny counts when setting up a new venture. Renting is not really an option as they need some capital - and they have a buyer now (touch wood) so we'll just have to wait and see how understanding the Alliance & Leicester is. I'll make one final posting if anyone is interested in the outcome. Thanks again to everyone who replied.

geoffky

vicjay wrote: »

There is enough equity in the house to pay it, but you're right, every penny counts when setting up a new venture. Renting is not really an option as they need some capital - and they have a buyer now (touch wood) so we'll just have to wait and see how understanding the Alliance & Leicester is. I'll make one final posting if anyone is interested in the outcome. Thanks again to everyone who replied.

Come off it....you want them to have the best of all worlds...tell them to pay it like everyone else has to... the bank will not want to fund the new venture and rightly so as most go bust in the first year.