Can I Claim On An Early Redemption Penalty?

Foxy1075

Hi. In March 2005 I moved house and redeemed my mortgage in full. At the time my lender Abbey charged me a £1900 penalty because I redeemed the mortgage while I was still tied into a fixed rate product. Is this something that I can claim back through the reclaiming of bank charges does anyone know please?

dwsjarcmcd

Loads of strings on this and the answer is no. Firstly it is not a penalty but a charge and secondly you broke your contract with Abbey.

dunstonh

just confirming what has been said.

its a valid charge and quite acceptable and the figure was known in advance of the money being lent to you. Nothing changed in the interim (which is the only part where redemption penalties have to be refunded).

ken_and_dot

Im new to this board and have only come across this subject in the last 24 hrs so have not seen or read any other strings. I am not a financial advisor nor do I have any formal legal training so would be interested to have my following comments disected.

I was under the impression that under contract law, if one party breaks the contract then any recompense sought by the other party must be limited to a value which would put them back into the situation they would otherwise have been in had the contract not been broken. In other words they should not lose out on the deal but neither should they profit from the fact that the contract has been broken. If an early redemption penalty amount is written into the contract and that amount leaves the them better off as a result of the other party breaking the contract then surely that is a penalty and under contract law illegal. I haven't done any sums but would assume that in some cases the early redemtion penalty does leave the B.Soc. in a more favourable position. Perhaps each case would depend on that calculation. Has this ever been tested in court on these grounds?

As for the penalty amount being agreed in advance and written into the contract, I do not see any difference between that and the fact that the banks publish their charges (including charges for unauthorised overdrafts) in advance.

Noz

ken_and_dot wrote: »

Has this ever been tested in court on these grounds?

In a nutshell, yes - and the claimants have lost thousands of pounds more due to having to pay for costs.

dunstonh

I haven't done any sums but would assume that in some cases the early redemtion penalty does leave the B.Soc. in a more favourable position.

Sometimes yes, sometimes no.

Most people dont understand that lending to consumers now involves more than just taking people's money on deposit and lending it to others. It involves money markets and borrowing the money themselves. A discount or fixed rate would see the bank itself going to market and getting terms to be able to offer those rates. In doing so, it incurs costs and would do again if it was to breach the terms. So when a customer repays the mortgage within the tie in period, the bank itself could be looking at charges.

Sometimes the bank may be able to make a little money out of it, other times they wouldnt. However, the charges reflect the costs at individual level on the assumption that the bank has to cover its costs.

As for the penalty amount being agreed in advance and written into the contract, I do not see any difference between that and the fact that the banks publish their charges

You dont sign a fixed term contract with defined charges with a bank account. You do with a mortgage.