Early Redemption Charge ERC

spring84

Hi

Now that mortgage rates are so low im tempted to change my loan. However I'm with nationwide and they have a 5% erc on the balance. Gutted. I found an article suggesting that these charges are excessive and therefore can be contested. search " fool and redemption charge illegal "and you'll find the article. yes the article is a bit outdated but the reasoning behind it is solid. I've also read an old thread on here that someone successfully challenged it and won but not much more info. Please if anyone has ever successfully challenged the charge or claimed it back I would love to hear about it? I know its a shot in the dark but i hope someone on here can help. It's sickening how banks can charge these ridiculous fees. My fault for signing with them but they are no different to loan sharks. The govt bails them out when they created this whole mess yet they won't do the same for the tay payer when they need help. Rant over for now.Tia

ACG

I think you may hae read about the deeds release fee? Where they were quoted a price...or wernt in some cases and then charged it or charged an increased amount?

ERC's are a valid charge - you cant say you didnt know about it as you clearly do and it will be on the paperwork.

spring84

Sorry can't post the article but it is clearly referencing erc.

I understand that it's legal but excessive. They say they need to cover their loss but I highly doubt they lose that much because they will lend it out again. Maybe in the near future the court will rule it in the way similar to PPI fees. :j

mrginge

Just because a fee is high doesn't mean it is excessive.

Thrugelmir

spring84 wrote: »

I understand that it's legal but excessive.

If its legal then you've no grounds to complain. You knew the terms of the mortgage offer at the outset.

I'm afraid to say you are barking up the wrong tree with this.

holly_hobby

Issue is the ERC formed part of the contractual terms you agreed to when you selected the product, and if hefty that suggests the product was particularly attractive in the market place (ratewise) at the time it was originally selected.

The only chance of a succesful argument to avoid this penalty, would be if the ERC and the implementation terms were mis-represented in your mge offer/contract (Misreprensentation Act 1967).

Or at the point of election, you were somehow prevented in making a balanced decision regarding consideration and suitability of this contractual term as being acceptable to you.

Notwithstanding the above, the fact that current product payrates have fallen below what you are currently contracted to, and that you accordingly fancy a swap, isn't a valid reason to challenge the ERCs that (I am assuming) have been known from outset.

ERCs are in relation to the such factors as the product (fixed,disc,etc), the payrate rate (or discount), product term (ie longer the term, generally higher the ERC), which is designed to take account of such assessed possible loss of profit over the same term given poss base rate and money market movements, and to disuade (esp on any loss leading rates) the mortgagor from jumping ship in such circs as you are considering ..... I say disuade as they aren't preventing you from leaving, albeit there is an ERC fee should you wish to break the contract and change product or lender.

If you wish to remain with the same lender, but change product, you could ask if there would be any negotation available on the ERC, but be prepared for them to rely on the contractual T&Cs as a refusal of request.

Hope this helps ... if not exactly music to your ears !

Holly x

dunstonh

I understand that it's legal but excessive.

They are not considered excessive because the cost the bank would suffer are in relation to the amount being borrowed just as the ERC is.

They say they need to cover their loss but I highly doubt they lose that much because they will lend it out again.

Most deals are financed by either borrowing money from the markets or investors. The term of that is financed at certain rates and conditions. If you repay the mortgage early, the lender probably cant lend it out again. It will either have to face the loss itself or pay penalties to the investors if it tries to repay the debt.

Maybe in the near future the court will rule it in the way similar to PPI fees.

The court never ruled on PPI fees. Indeed, the whole PPI issue has absolutely nothing to do with PPI as a product or the cost of PPI.

spring84

Thanks for everyone's response but I'm still not convinced.

Please search first successful erc claim to find a link about Bryan Brown successfully claiming back the erc from NatWest who agreed to settle out of court. Hmmmmm. Seems like banks fear if they lose then this will open the floodgates to many similar situations and that is why they settle out of court. There is hope.

Here is a bit from that post,

"Changes to the rules for launching small-claims cases will make it easier
for borrowers to challenge lenders in court. If you are claiming
compensation of less than £5,000 you can now take a case to court for a fee
of about £100.

To launch a claim, you must already have paid a redemption penalty. But
there is no guarantee you will win and have the penalty refunded. Phillip
Cartwright of London & Country Mortgages, a broker, said: "As soon as a
redemption penalty is held up as unfair in court, the industry will be
plunged into chaos. Everyone would be free to remortgage."

holly_hobby

So Natwest can not be used as a precedent - nor referred to in court as the case did no proceed through the judicial system. You'll also find that the reason given by the bank to the debtor for settling Out Of Court (OOC), would have nothing to do with the ERC and legality itself (as to do so would of course admit liability), but probably for something else (gesture of goodwill is likely), and would have been offered on the strict understanding that the details of settlement were not discussed, revealled or published by the debtor or their legal team.

So, back to you .... you pay your ERC, and elect to take the lender to court (with a legal team willing to take the case) ...... scenerio could play out as ...

• Nwide don't offer any settlement out of court, forcing a judicial hearing.
• The Judge finds in their favour, based on the fact that the ERC was a clear contractual term of remedy, at commencement (and your change of product/remortgage to an alternative provider was entirely voluntary).
• Judge finds in the respondents favour with the additional awardment of their legal costs (on top of you also having to pay your own legal fees).
• Or, of course you may be offered an OOCS OR the Judge may find in your favour ..... but its risky

Personally given the potential costs of Nwides legal costs (and the fine balance of the complaint), and notwithstanding your own costs (if unable to secure a "no win, no fee" legal team) ... I wouldn't really want to take the chance of my action failing .... unless of course this is a complete matter of principle, and as such you are both prepared to be faced with and able to absorb such costs, on any unsuccesful petition.

It is of course up to you and what any legal team you employ should guide. But given that Judges are upholding consumer credit cases in the creditors favour, where the creditor isn't even able to provide a contractual credit agreement in support of terms they claim the debtor to have breached, gives you some idea on how this may go.

I wish you well ..... if you do take this further please come back with an update as to how things panned out !

Hope this helps

Holly

Let_Us_See

Personally, I don't wish you well. Please do not think I am being unkind, but the terms and conditions of the mortgage you originally agreed to accept haven't changed, only you now see it may be more beneficial to re-mortgage to a lower rate. Fine! I have no objection to that, but please stop moaning, pay the redemption charge and move on.

spring84

Maybe they settled because they were afraid to lose and have all the money to shut us up. Unfortunately my pockets are not as deep as the banks and can't afford such a risk giving them an advantage, money speaks louder than ethics. But perhaps my post would let others know that it can be done if they are not fearful like me and can afford such a risk. A fellow poster by the name of malchish has some great advice if anyone is interested which can be found in the main erc sticky thread post #339. I just wish there is a robin hood out there for us little folks and not let the greedy banks get there way.