£7,500 for Redeeming Mortgage Less than a Year Early?

Moneysaver666

Hi, I'm hoping I might be able to get some advice here. My father has a mortgage with Santander for £250k that is interest only and runs out in May 2015.

My husband and I have sold our flat and are buying the house from him. He has today told me that he dug out some paperwork and found a letter from Santander dated a year ago that states if he were to pay off his mortgage early, he is liable for a £7,500 fee. He said he phoned them up and they confirmed this.

Now, to me, given there is less than a year left, this seems unusually high and I would only expect to see a fee like that if he were still in a fixed rate period - which I'm assuming he's not at this late stage of the mortgage (I will check this).

My dad is not what you would call finically savvy. He very much sticks his head in the sand and even had to go and dig through paperwork to find out how much his mortgage is even for, so I don't know if when he phoned them up perhaps there was some miscommunication.

I guess my question is, is this charge likely to be correct? And if so, is there anything we can do about it? It seems disgusting to me to charge a 3% exit fee with less than a year to go.

Many thanks for any advice!

ACG

There would only be an ERC if he was tied into a product.

If he was on the standard vairable rate there would be no ERC.

dunstonh

Now, to me, given there is less than a year left, this seems unusually high and I would only expect to see a fee like that if he were still in a fixed rate period - which I'm assuming he's not at this late stage of the mortgage (I will check this).

On a 25 year mortgage you could buy 5 fixed rate deals of 5 years. He has probably bought multiple ones over the years.

I guess my question is, is this charge likely to be correct?

A figure of that size suggests he is in a special terms deal.

And if so, is there anything we can do about it?

no

It seems disgusting to me to charge a 3% exit fee with less than a year to go.

You cant have your cake and eat it. To fund the deal, they have to get investors who will penalise the lender if they return the money early or the lender will have to continue paying the investors the agreed rate until the end of the deal. So, either the lender charges the person or the lender charges other people who are not breaking the contract. Charging the person breaking the contract is fairer.

Moneysaver666

Ok so now I've gotten a bit more information based on the response from ACG I phoned my father and asked if he remortgaged and he has said a year or so ago Santander phoned him up, and asked him if he wanted to save money with a better rate. He just said yes, and signed up.

As mentioned, he's not great with financial matters, and it wasn't explained to him that by taking this rate he was tying himself in, and was in fact at the time, putting the property on the market! (He did this prior to us deciding to buy it). If he had understood there would have been a penalty if he sold he never would have done it.

Is there any comeback on this? Obviously he's at fault for not reading the fine print but I do feel this product was mis-sold and not explained to him properly - he was just told he'd be saving money!

Moneysaver666

Posted above before seeing Dunstonh response. I understand what you are saying - but they didn't ask what he was going to do about paying the mortgage off - given there was such a small amount of time to go. As it was, he had no money to clear the mortgage and would have to sell - I feel this to be a very basic question they should have asked him.

ACG

Was it advised or none advised?
If none advised then unlikely unless he specifically mentioned it on the phone call and then there may be a chance of some come back but im not sure how much.

He would have been sent a KFI which is only a 3-4 page document and is fairly straight forward explanation of all of the important points of the mortgage. As you said it was your fathers fault for not checking the paperwork so I would not hold my breath on getting them to waive the £7k charge but if they listen to call and he did mention it then as I said you might get some sort of goodwill gesture but I wouldnt be expecting thousands or anywhere close.

EDIT: It was probably non advised, it was not their responsibility. They asked your dad if he wanted a new deal, he said yes - job done. If hes not great with money he should have gone for advice.

Thrugelmir

Moneysaver666 wrote: »

but they didn't ask what he was going to do about paying the mortgage off

Not the banks problem nor was it the purpose of your fathers contact with them.

As mentioned, he's not great with financial matters, and it wasn't explained to him that by taking this rate he was tying himself in, and was in fact at the time, putting the property on the market! (He did this prior to us deciding to buy it). If he had understood there would have been a penalty if he sold he never would have done it.

If God had wanted the human race to have hindsight he would have put it in our genes. Sorry retrospection does not constitute miss selling in any guise.

Moneysaver666

I understand it's not the banks problem and my Dad should definitely have read the paperwork - i'm in disbelief he's done something so silly. But I guess I'm just thinking it's not the banks fault when people go over their overdraft, and they KNOW they are going to get charged - but people still got back their unfair bank charges! (I know I'm clutching at straws here).

Just upset - he does't have the money so we'll have to pay it. What a massive amount of money to chuck down the drain.

Senior_Paper_Monitor

Why not wait until the end of term/penalty ?


What are his arrangements once you buy the place ?


Is he selling it to you at market price - is he moving elsewhere ?


I suspect that once the full details are out there are many issues with this transaction - I suggest you avoid the errors that your dad has made in the past i.e get a mortgage adviser on your case NOW !!

ACG

Im also sure there could be a way of doing this without incurring the fee - potentially you lending the money to your dad (assuming he needs it) and then in a years time completing the transaction - putting some legal paperwork in place.

Moneysaver666

Senior paper monitor: all of the issues have been dealt with. I engaged both a mortgage broker and a solicitor from the outset.

ACG - we are getting a mortgage in order to buy the property and I don't really want to postpone this as who knows what might happen by next year - rates could have risen, lending criteria could have changed... The property also needs extensive renovation work which I don't want to embark on if I don't own it - and don't want to live there without doing!

My dad is remaining in an annexe portion of the property and is selling us a share in the house (legal paperwork in place and we've got a specialist mortgage)