ERCs- Early Repayment Charges - early exit fees. (merged).

MarkyMarkD

But, no, there is no regulation of such charges. They are a contract term which you agree to when you buy the mortgage and they are clearly laid out in the KFI which you receive in a standard format in respect of all mortgages.

If you only have 8 months left, it's simple - wait 8 months until you redeem.

MarkyMarkD

DarkShadow wrote: »

Thanks, my question was

Will 3% be charged on £440 ? (£16000 - £15560)
or
Will 3% will be charged on £155,600 ?? If this is the case, then big issue.

If your fixed rate ends on 2 Feb, then your ERC will almost definitely end on the same date. So after that date, you pay off the £16k and you switch products. No ERC, no problem.

Kengai

MarkyMarkD

Thanks for your really helpful post re ERCs.

My partner and I are separating - we're into the 3rd year of a 5 year fixed rate mortgage, and are having to sell our house because neither of us can afford to hold onto it ourselves.

We have a number of creditors all due money on the sale of the house - we have had a very good offer on the house given the current climate, but even with that offer, we still can't afford to pay the ERC in full.

What do we do? Everyone needs some money out of us and we're offering our lenders a proportion of the ERC - we just can't afford to pay them the full 4% they're asking.

Should they be willing to look at an offer? We can pay the mortgage - that's not a problem - but we simply can't pay the ERC in full.

MarkyMarkD

No, there's no reason why they should accept less. As you say, you can afford to pay the mortgage.

If either of you were in a position to buy a cheaper property in your own right, the lender would probably allow you to port the mortgage (or part thereof) and hence reduce the ERC pro-rata (i.e. if you port half the balance you should only pay half the ERC). But if you have creditors to clear, I guess that buying something else isn't an option either.

The lender is the preferential creditor and is entitled to its full redemption amount including ERC from the proceeds. When you say "you can't afford to pay the ERC in full", I think that means you can't afford to pay the other creditors in full.

The lender's attitude will - quite rightly - be that the other creditors can get stuffed, if they are unsecured. They get paid first, in full.

alim_2

MarkyMarkD

Thanks for your really helpful post re ERCs.

I'm in a similar situation to kengai. I got a floating rate mortgage which provides that there is a flat ERC of 3% until aug 2011. I need to sell the house and would be happy to pay a pro rata fee but think its unfair and greedy for them to charge a flat fee. Alot of banks (like hsbc) charge their fees pro rata and that's fair enough. You will no doubt tell me that this is in the terms of the loan and so I have to live with it.

I have 2 questions: first, how is it that some banks are ok with the pro rata system and others charge a flat ERC just because they think they can get away with it. And second, this may be in the terms but is it valid under english or european law? it was stated in the thread earlier that there were no legal cases on this. Is that still the case, ie have consumer rights groups not tried to fight this one. It seems to me a pro rata fee is ok as it may reflect the cost to the bank. But a flat ERC is clearly not a genuine pre estimate of the banks loss and so seems to me to be in the nature of a penalty under the law, one which deters you contracting party from exiting the contract. would you not agree?

MarkyMarkD

It's not a penalty for breach of contract. It's not therefore required to be any sort of pre-estimate of the bank's loss.

As I've posted (but ages ago and not on this thread), some banks used to charge ERCs which were calculated in a totally fair way, and exactly matched their losses.

But because (a) the exact way of calculating their losses is rather complicated, and (b) the ERCs calculated using this formula could be absolutely enormous - say 20% of balance, there was huge consumer backlash. And we ended up with the current situation where most ERCs are flat percentages of balance.

It's dumbing down, and it means that people like you lose out, so that those who cause the banks huge losses by repaying at particularly costly times don't have to pay the fair cost.

So, to answer your question, it's just part of the product pricing decision for each lender. If they want to offer a product with a flat ERC or a diminishing ERC, that's up to them. And it's up to the buyer to choose whichever product meets their needs.

Why do you think that the ERC any different to the rate payable on the mortgage in that regard? Simply because you might not pay the ERC? But equally well, you might not pay the interest rate for the 25 years you originally signed up to ... that doesn't make it unfair if the rate is 0.1% higher than another bank. It's just different.

Early repayment is not a breach of contract ... it is an option you have under the contract. The fact that at least 75% (probably 90%) of customers exit their mortgage contracts before their contractual maturity date (the natural end of the term, typically 25 years) demonstrates that (a) it's an option and (b) it's an option most customers take up. Similarly, ERCs are clearly (IMHO) a core term of the contract, not a penalty charge, because so many people pay them.

There has never been a successful FOS case against ERCs where they were fully disclosed up front. I don't see any logical grounds for a successful legal challenge, and nor do I see any logic in a consumer group going up against them.

People have to accept that a lot of things are a "nil sum game". If one person gains, someone else loses, and that "someone else" is probably not the lender.

FinCap

My brother has had to sell his home due to redundancy. Northern Rock calculated the ERC at £17000. He wrote explaining his financial situation (ie no job, no money, need to rent a house for his family, etc) and they have reduced the ERC by £2000. So - it's worth trying, and does anyone have any other top tips for getting the ERC reduced further? (please no long replies about how it's legal etc - I know all that - I'm just looking for examples of where people have had success to learn from). Thanks.

dunstonh

FinCap wrote: »

My brother has had to sell his home due to redundancy. Northern Rock calculated the ERC at £17000. He wrote explaining his financial situation (ie no job, no money, need to rent a house for his family, etc) and they have reduced the ERC by £2000. So - it's worth trying, and does anyone have any other top tips for getting the ERC reduced further? (please no long replies about how it's legal etc - I know all that - I'm just looking for examples of where people have had success to learn from). Thanks.

NR are generally the exception and thats because they want rid of much of their mortgage book (that is now on the bad bank side). A few other sub prime lenders did have a stint a while back but they have stopped now.

You are totally within the goodwill of the lender. You have no leg to stand on so all you can do is plead your case.

MarkyMarkD

It's not the "bad bank", dunstonh. It's simply the less likely part of the bank to get sold off by the government, because it's virtually all securitised.

As has been debated elsewhere on MSE, the borrowers in NRAM are not necessarily any "worse" than other NR borrowers, and calling it the "bad bank" simply reinforces a myth.

Beatlefan

Hi, I wonder if any of you helpful MSEs can help with a query about our mortgage please?

We moved our mortgage from a previous provider to a fixed 5-year rate with our current provider in 2006, saving around £80 a month in the process. The mortgage has got another 11 years to run, but the fixed rate runs out in the second half of next year.

We're on a rate of about 5.2% much higher than the base rate. I know it's given us some certainty, but I was wondering whether to ditch our fix or not.

I know if you move your mortgage to another company you have to pay an Early Repayment Charge. Does anyone know if you have to pay the same amount if you cancel your switch, but stay with the same company?

I don't know if my current lender will even let us do that, but I thought I'd investigate. I know there's a risk that rates could rise again in the future, but want to look at all the options before making a decision.

If we ditched our fix, but stayed with the same mortgage provider, would that impact on our credit score at all?

I've wondered about trying to move our mortgage to another provider if it works out cheaper after paying the ERC (probably unlikely, I know). However I have one default on my credit record (5 and a half years ago), although my credit score is "good" according to Experian with a score of 900. The rest of my credit record is fine (although I need to cancel some old store cards I never use any more). Does anyone know if I would be able to move my mortgage to another provider with a credit score like that? It didn't stop us in 2006, when the default was much more recent, although I know credit's much harder to get nowadays!

Grateful for any help/tips anyone can give. :T: A

Many thanks.