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

dunstonh

Oh, you are an independent financial adviser!:rotfl:=paid and fed by mortgage lenders

Please can you tell me how I am paid and fed by the mortgage lenders? As you say, I am an IFA. That doesnt make me a mortgage adviser.

ha, no problem then, your words equal to mortgage lenders' words. Not objective, but what all lenders want us to believe. No serious consumer will take your words seriously.

Again, you have shown that you clearly dont know what you are talking about. So, why should anyone take you seriously?

it is up to you to provide evidence that there has been any victory at all by mortgage lenders about ERC. I do not owe you any evidence.

No its not. A contact is legal unless proven otherwise. If you cant point to any cases where the court has ruled them unlawful then your comments are pointless.

MarkyMarkD

As Dunstonh says, FOS have not published any findings on ERCs other than relating to undisclosed ones. This is not an issue which they would have kept quiet about, if they believed that there was a general issue with unreasonable/unfair ERCs.

It might surprised malchish to learn that if a lender lent money at 5.99% fixed, it didn't simply "hope" that interest rates wouldn't rise. In fact, it will almost universally have agreed to pay away the same (or a slightly lower) fixed rate to a third party (like a large international bank) in exchange for a variable rate.

So suggestions that lenders still charging (say) 5.99% fixed are "profiteering" are completely cobblers. In fact, they are almost definitely LOSING money because they will be receiving LIBOR of around 0.70% whilst paying savers rates like 2%-4%.

The sums work like this:

Say at the time the 5 year rate they agreed with the big bank was 5%, and they charged you 5.99%. So, they receive LIBOR +0.99% throughout the fixed term - not your 5.99% at all.

At the time, LIBOR +0.99% seemed like a good return.

Now, LIBOR +0.99% is around 1.71%, which is nowhere near the realistic cost of funds.

And how about profit, bad debt losses, admin expenses? No room for them either.

If you exit the 5.99% rate early, they effectively have to continue paying the other bank 5% until the end of the fix, even though they aren't getting anything from you. So that's a huge annual loss. And typically your ERC will be just 3% of balance - miles less than the true cost to the lender of early exit.

cyclotron451

I'm from Leeds - but been living in Italy for a few years. The mortgage market here is slightly different. I offer these comments for information only, they are my opinion and I can't say how/if at all this will affect the UK situation...

I bought a 200K fixed term 20year mortgage, ten years ago.
It was at 6.3% fixed.
Today I visited my bank and enquired about a remortgage,
I can get a 10 year (residual) 145K at 4.25% fixed.

The interesting thing is that my original Italian mortgage had a contractual 3% ERC, early repayment charge (called in Italian "an omnicomprehensive commission for the early total extinction of the mortgage")

I received a letter from my bank in March 2010 informing me that my ERC charge is currently around 4509 euros.
Doing some reading on the internet I discovered an italian 'transparency consumer law' No.2 of 2009 - aimed at helping families in the current economic crisis. This law says that in the case of a remortgage or a mortgage transfer the banks involved can in no way charge direct or indirect fees to their clients.

My new mortgage arrangement costs are therefore Zero,
the early termination fee is Zero, and I can remortgage at a ten year fixed rate, paying off 1 year early and saving nearly 200 euros per month. The banks are not really advertising this - but I think many people are currently taking this choice!

Now explain the UK situation to me again?

MarkyMarkD

It's easy to explain the UK situation, in that context.

Under UK law, consumers are expected to adhere to the terms of the contract they agreed. Only rarely does the government enact retrospective legal changes which adjust the terms of existing contracts.

That's why what is happening in Italy is incredibly unlikely to happen here.

Incidentally, it's a remarkably unfair and inconsistent legal position to have arisen in Italy. Why should a certain group of people (those on high fixed rates which they chose) get a huge windfall, whilst others don't?

dunstonh

http://www.financial-ombudsman.org.uk/publications/ar02/ar-overview.htm

Fixed-rate mortgages give borrowers the benefit of knowing there is no risk that their payments will rise if general interest rates increase. But there is almost always an early repayment charge to pay if the borrower wants to end the fixed-rate deal early. This is because many lenders fund fixed-rate mortgages by borrowing at fixed rates in the money market. If the lender has to break its money-market deal, it may have to compensate the institution it borrowed from.
<snip>

When general interest rates fall, some fixed-rate borrowers want to break the fixed rate without paying the early repayment charge. At the end of the discount period, some discount-rate borrowers do not want to go on to the normal rate or pay the early repayment charge. They complain they did not know of the charge, or that it was unfair.

We consider whether the details of the early repayment charge were made sufficiently clear and were adequately brought to the borrowers’ attention when they entered into the deal. We also consider whether the charge was structured in a way that was likely to operate fairly or unfairly.


It is not the case, as some borrowers believe, that the lender must be able to show that the charge is exactly equal to the lender’s loss. That is a complex formula – which might involve drafting an early repayment charge clause that no ordinary borrower could understand. What is needed is something that is clear and not out of all proportion to the lender’s prospective loss.

-SDW-

right...I've always had mortgage with HBOS , i moved house in 2007 hoping to stay with hbos..oh no...'your credit rating has gone down and we cant give you a mortgage, however, we can get you one with Birmingham Midshires which we own'..they charged me 5k early repayment fees to settle HBOS mortgage....i only needed a 100k morgage but BM offered me 230k..bad credit rating eh?..anyway... my point is this.. HBOS said i had a bad credit rating ...but by charging me 7k in bank charges which i got back,and various other ppi charges totalling 6k , if i had not had theses charges my credit rating would have been better ...so the bank has put me in a position which meant i could not keep the same mortgage i've had for years and charged me 5k to move to one of thier subs!!...what do you think the chances are of getting some sort of recognition from the bank that they were wrong and my credit rating repaired..and if i'm lucky all my 5k back ??

malchish

You need to go to Citizen's Advice Bureau as soon as possible, they will help you to word the complaint to the lender. This is the first step.

-SDW- wrote: »

right...I've always had mortgage with HBOS , i moved house in 2007 hoping to stay with hbos..oh no...'your credit rating has gone down and we cant give you a mortgage, however, we can get you one with Birmingham Midshires which we own'..they charged me 5k early repayment fees to settle HBOS mortgage....i only needed a 100k morgage but BM offered me 230k..bad credit rating eh?..anyway... my point is this.. HBOS said i had a bad credit rating ...but by charging me 7k in bank charges which i got back,and various other ppi charges totalling 6k , if i had not had theses charges my credit rating would have been better ...so the bank has put me in a position which meant i could not keep the same mortgage i've had for years and charged me 5k to move to one of thier subs!!...what do you think the chances are of getting some sort of recognition from the bank that they were wrong and my credit rating repaired..and if i'm lucky all my 5k back ??

malchish

Ombudsman decides each case on an individual basis, so there will be no general detailed info for everyone yet.
Mortgage lenders that settled and paid money to complaining consumers all have done this on the condition of confidentiality, that's why all winning consumers are sitting quiet - they are not allowed to talk, this is the condition of their payout.
"Independent" financial advisors (who are paid by commissions from banks, which are mortgage lenders, and represent ) have to keep supporting interests of the lenders... No wonder that a post by a knowledgeable consumer will be attacked by those "helpful specialists"!
There have been successes where consumers got their ERC refunded, but the consumers have to keep quiet. You, "independents", know about this. And don't pretend that you don't.

MarkyMarkD

FOS publish lots of individual case rulings, where they believe there is a general principle to be illustrated. They have not chosen to publish a single case of a ruling where they have required an ERC to be refunded, where it was fairly disclosed up front.

If an individual won an FOS ruling, they would not be subject to any "gagging" clause. Such a clause could only apply if a lender made an offer to settle an ERC case prior to the complainant going to FOS - and I can't believe that has happened TBH.

As you appear totally confident that there are such cases, presumably you'll provide us some convincing evidence?

dunstonh

"Independent" financial advisors (who are paid by commissions from banks, which are mortgage lenders, and represent )

Since when? I have never been paid by a bank or mortgage lender as an IFA.

No wonder that a post by a knowledgeable consumer will be attacked by those "helpful specialists"!

You are not knowledgeable. You dont even know what an IFA is.

There have been successes where consumers got their ERC refunded, but the consumers have to keep quiet. You, "independents", know about this. And don't pretend that you don't.

There has been a tiny minority of cases where the ERC was refunded. However, those cases were linked to the contract. Some early ones as well were linked to how they were set up.

There has never been a gagging order on any FOS ruling and the FOS publish many of their rulings.