Mortgage completion

pjmay

Hi,
Can anybody offer me some advice. We have had an Endowment Mortgage with Santander since 1986. Unfortunately we applied for a capped interest rate four and half years ago, little realising the problems that would be caused. The only way they would let us do it was to add 6 months to the mortgage length, apparently 5 years was the minimum term for rate capping.
After receiving our mortgage statement for 2010 I rang Santander to find out what the situation was regarding the completion. This was February 2011 and I was informed that in October 2011 the endowment would mature and We could either pay off the mortgage or let it run to March 2011. I asked for an estimated figure for October and they told me what it was, but because I was paying early there would be an ERC and mortgage completion charge of £225. I argued that paying 6 months early on a 25 year deal was hardly deserving of an ERC. I also reminded them that we had had 3 continuos mortgaes with them since 1969. The chap at the call centre had a chat with his supervisor and got back to me to say that agreed to drop the ERC but the £225 was to remain.
Jump now to early October and we rang back for a completion figure and were amazed that the ERC had been reinstated. After telling them about our earlier phone call they agreed to reduce the ERC by £663, we were not happy and asked them to put their calculations in writing. The first letter we received asked for the full ERC and several other figures that did not make sense. After several phone calls I decided that we needed a face to face and rang up our local office to go and see if they could make any sense from the various amounts contained in the correspondence. The mortgage advisor after reading the letters could not make any sense with the differing figures and decided to ring Head Office and was informed that the ERC was payable because some of it was made up from the endowment shortfall. I said that basically you are surcharging us because the product that you sold had underperformed. It would appear so I was told. After another couple of letters I was finally told that they had made a final decision and they wanted the reduced ERC, but just as a token they enclosed a cheque for £25. Which works out at about 60p for every year we have been mortgaged with them. We returned the cheque.
Had a look at our original offer from 1986 and it neither mentions a completion payment nor ERC, in fact on our annual statements it says that the mortgage does not attract any charges.
Any advice will be much appreciated because although the mortgage is miniscule by today's standards I fail to see why they can surcharge anybody for a shortfall on a product that they sold.

opinions4u

pjmay wrote: »

We have had an Endowment Mortgage with Santander since 1986. Unfortunately we applied for a capped interest rate four and half years ago, little realising the problems that would be caused. The only way they would let us do it was to add 6 months to the mortgage length, apparently 5 years was the minimum term for rate capping.

They had a 5 year capped rate product with ERCs built in to it.

You had an endowment policy due to mature in four and a half years.

So the question here is why did you go with the 5 year capped rate product knowing this?

After receiving our mortgage statement for 2010 I rang Santander to find out what the situation was regarding the completion. This was February 2011 and I was informed that in October 2011 the endowment would mature and We could either pay off the mortgage or let it run to March 2011. I asked for an estimated figure for October and they told me what it was, but because I was paying early there would be an ERC and mortgage completion charge of £225. I argued that paying 6 months early on a 25 year deal was hardly deserving of an ERC.

This is nothing to do with the 25 years you've had this mortgage for. It's everything to do with the 5 year capped rate mortgage product. Part of the pricing of that product includes an ERC. Typically the higher the ERC the lower the rate of interest.

It's not reasonable, fair or rational to agree to an ERC four and a half years ago and then turn round and say you shouldn't have to pay it because you've had your mortgage with them for nearly 25 years. So this approach won't work for you.

I also reminded them that we had had 3 continuos mortgaes with them since 1969. The chap at the call centre had a chat with his supervisor and got back to me to say that agreed to drop the ERC but the £225 was to remain.

Again, 1969 means nothing in this. It's all about the mortgage product - the 5 year cap and what the T&Cs of that say. When they agreed to waive the ERC you should have got it in writing. It's possible they may have a recording of the call though.

Jump now to early October and we rang back for a completion figure and were amazed that the ERC had been reinstated.

It's part of the product. It won't disappear until you convince them that they agreed to waive it. Then some sort of manual procedure will have to be brought in to play on the day they process it.

I said that basically you are surcharging us because the product that you sold had underperformed.

This is a different issue. They ERC is because you want to repay a 5 year product after 4 and a half years. Endowment performance is a separate thing.

Had a look at our original offer from 1986 and it neither mentions a completion payment nor ERC

The completion payment has been brought in since the start of the mortgage. You agreed to the ERC when you agreed to the capped rate.

You have three issues as I see it:

1) The sale of the endowment and its performance. If it was taken out before 1988 there is little you can expect to do about this. Which company is it with and who sold it?

2) The ERC. Why did you take out a 5 year capped rate when the policy only had 4 and a half years to run?

3) The £225 in admin fees. Have a read of this to see if you are being fairly treated on the matter and take things from there.

Question (2) is an interesting one. It sounds to me like you really wanted the security of the capped rate. The ERCs should have been clearly spelled out by whoever arranged that for you. The other point is the previous verbal agreement to waive the ERC. Their failure to honour this agreeement gives you grounds to complain. If you're not happy with the complaint outcome you can then forward it to the FOS.

Could you put the endowment proceeds in to an easy access savings account until the ERC drops off? What is the current rate of interest on the mortgage?

One point of clarity - please can you restate the timeline and dates. I don't really understand them. I think you've mixed up the years 2011 and 2012 and various points. Not sure.

For the record, instinctively I agree with you. They set up the 5 year capped product knowing the maturity date of the endowment policy. For this reason I believe you have a case for the ERC to be waived. It would seem unfair for them to charge either the ERC or an additional 6 months interest on the debt. I also this the FOS would agree - but that's not a given (although a transcript of the telephone promise to waive will seal the case).

kingstreet

The mortgage account fee, currently £225 should have been shown in the key facts illustration you were given for the capped rate before you decided to accept it. This is payable on repaying the mortgage in full, at any time.

The early repayment charges should also have been listed therein. This represents the loss the lender makes on the interest rate swap it agrees in the money market in return for your guarantee. It is not a penalty levied on you by the lender which the lender keeps. It is passed on to a third party to compensate it for the agreement ending early.

The rates and charges which apply to the capped rate were accepted when the cap was accepted. Unfortunately, there is no scope to pick and choose the aspects of an offer you like, while rejecting the ones you don't.

Were you issued a key facts illustration?

If a lender agrees to waive or reduce an early repayment charge it does so voluntarily and its reasoning for amending, or applying the variation is its own. It may decide it no longer wishes to waive the charge if a sufficient amount of time passes. It is unusual for a lender to make such an ad-hoc gesture, in my experience.

The endowment issue is a red herring, in my opinion. As the ERC waiver was voluntary, as I said, there is nothing to prevent the lender from varying that at a later date. It's a little churlish of them to mention the endowment shortfall issue but as it had no contractual obligation to waive the ERP in the first place...

I tend to agree with o4u in that a mortgage offer lasting five years would mean paying an ERC to redeem early, or waiting until it expires and placing the policy proceeds in a savings account. After making the maximum allowed overpayment to reduce the mortgage balance of course. Choosing such an offer in the knowledge of needing an "out" before it expires would not be sensible.

The only realistic action you might take is to make a formal complaint to Abbey about the ERP waiver changing, with an approach to the FOS afterwards if you aren't happy with the result . I don't know what the chance of success might be. Write down what you think has gone wrong and what you want them to do to put it right, in a letter headed "Complaint" and send it to them recorded delivery, having taken a copy.

silvercar

Compare the interest rate you could get if you put the endowment proceeds into a savings account against your mortgage. How much extra would the mortgage cost you over the 6 months? If that is less than the ERC then its worth doing.

(Not withstanding any shoddy treatment or broken promises that others have commented on.)

pjmay

Many thanks for your replies guys. We have decided to hang on till March and just settle but I think that everyone needs to know and understand that unfortunately we are swimming with sharks. The mortgage rate cap was done on the phone by my wife and she cannot remember being told of an ERC being activated. At the time she was worried that interest rates were about to go through the roof, we settled on 6.25% for the duration of the loan plus of course the extra 6 months.
The part I wanted everybody to be aware of is the quote from their final letter
" It may help to backtrack slightly and explain that if the full or part of the mortgage is being paid off using proceeds of a maturing endowment then we do not charge an ERC on the portion paid off using those funds" .My argument is that most endowments that were being sold underperformed and that inevitably there would be a shortfall and does it really matter if all monies are in place to finalise.
Luckily for us we are only talking in our case of a few hundred pounds and our correspondence with Santander has dragged on a wee bit and we are practically at the end now.
As silvercar quite rightly puts they are very shoddy and they will not even care or notice when we close our accounts down and find a new home for them.

Thrugelmir

pjmay wrote: »

Many thanks for your replies guys. We have decided to hang on till March and just settle but I think that everyone needs to know and understand that unfortunately we are swimming with sharks. The mortgage rate cap was done on the phone by my wife and she cannot remember being told of an ERC being activated.

This would have been clearly detailed in documentation sent to you following the change.

At the time the ERC probably wouldn't have crossed your wife's mind.

A salutory lesson in reading what you are sent I would say. Your not alone I should add. Amazing how many people even in business fail to read the contractual terms of what they are signing.

pjmay

Thrugelmir,
Wise words, I can't even say I will know better next time because at my time of life there will not be a next time. There is an important lesson to be learned, (no, not ignoring my wife) read everything and then re-read everything.
Again thanks for your time.