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

MarkyMarkD

No. The ERC is due if you redeem on or before 30 March and they are entitled to charge it. If your buyer must complete before that date, it's hard luck.

If the 3% ERC is more than the stamp duty, obviously you might as well offer to pay the stamp duty for the buyer rather than paying the 3% ERC, or come to a compromise with the buyer.

Belmonte

Cobbler78 wrote: »

I have had a offer on my house and the buyer wants to complete before 24th March so as not to pay stamp duty. My problem is my fixed term comes to an end on 30th March, however, my final payment in this fixed terms is on 6th March. I have called Accord and have been told that even if I complete on 23rd March, I will still be liable for the 3% ERC fee. Does this sound correct? Surely there is a way round this for the sake of a week, especially as I will still be making all 24 payments in the 2 year fixed rate product in full.

Although your provider can legally charge your ERC up until the end of your term, you may be able to get the ERC waived if you raise a complaint with your provider stating the above reasoning.

I have heard of an ERC being waived recently in the exact same circumstances as yours very recently following a complaint. This was with one of the big providers.

Your complaint will have a much higher chance of being upheld if you are looking to take out a mortgage with your provider with your next house purchase, assuming you are buying another property.

MarkyMarkD

There's no grounds for a "complaint" as the lender isn't doing anything wrong.

However, if the mortgage is portable, there is nothing to stop you applying to your existing lender for a mortgage on your new property, and then the ERC will normally not apply.

If you are simply choosing to borrow elsewhere, most lenders will tell you to "get lost" if you ask for leniency on something they are quite entitled to charge. And if you have chosen to borrow elsewhere, because it's cheaper, you should (or your adviser should) have costed in the ERC.

Belmonte

MarkyMarkD wrote: »

There's no grounds for a "complaint" as the lender isn't doing anything wrong.

If the mortgage provider is FSA regulated there is grounds for a complaint if the customer wants something investigated.

Complaints do occasionally get upheld even if the provider has operated within T&Cs. T&Cs are not drawn up with every possible outcome in mind, therefore a provider can act within their T&Cs and still treat a customer unfairly.

Given that, in this circumstance, the customer will have met all payments within the fixed rate period it could be argued that charging the ERC is unfair - ERCs are charged to compensate the provider for loss of interest if the mortgage is redeemed before the term, as the customer will have made all their payments the lender is not out of pocket.

I have seen an ERC waived in these exact circumstances very recently following a complaint, so it is an avenue the poster might wish to pursue - especially as raising a complaint costs nothing.

The provider may still decline your complaint of course so dont bank on anything...

Thrugelmir

Belmonte wrote: »

Given that, in this circumstance, the customer will have met all payments within the fixed rate period it could be argued that charging the ERC is unfair .

There's a contractual term that was clearly defined at the outset. So there's no grounds to complain. As contracts are governed by law.

Belmonte

Thrugelmir wrote: »

There's a contractual term that was clearly defined at the outset. So there's no grounds to complain. As contracts are governed by law.

If the provider is FSA regulated you do not need to justify your reasoning to raise a complaint. If you want to complain they will have to investigate and provide you with a decision.

However, given what I've said above about why lenders charge ERCs I would argue the customer is justified is raising a complaint.

FSA regulated financial institutions are governed by the FSA who can overturn contractual agreements within reason. Everyone who has had a PPI mis-selling payout originally signed a contract for example.

dunstonh

FSA regulated financial institutions are governed by the FSA who can overturn contractual agreements within reason. Everyone who has had a PPI mis-selling payout originally signed a contract for example.

Yes. And look at the mess the FSA has made because it changed its mind overnight and moved the goalposts.

The thing is that the FSA does not review complaints. The firm does, then the FOS if the person pushes it further. The FOS will consider law and fairness. Whilst there has been success in the past on ERCs, these were typically where the ERC failed to appear on the contract. An error that lenders quickly resolved and you would expect by now that all those people have moved past their tie in point.

Apart from that, the ERC is generally considered a fair term due to the costs involved if someone does redeem their mortgage early. Especially on mortgages financed by borrowing.

Belmonte

If the complaint got to the FOS they would look to see if the lender was providing the customer with a fair outcome.

If the lender had declined the complaint the FOS would look for their reasoning

In this case the lender would have declined the complaint on the grounds that they made the customer aware up until what point they charged ERC.

The FOS would then look at why ERCs are charged; to compensate the lender for loss of income if a mortgage is redeemed before the end of the fixed term. You're right in saying that ERCs are considered a fair charge by the FOS on these grounds.

However, as the customer has already made all the payments he is due to make under his fixed term there is no need for the lender to be compensated for early redemption of the mortgage. The lender has already received all the payments they are due. Therefore if they apply the ERC despite having received all the payments I could see the FOS taking the view that this is unfair.

The problem the original poster would have is that the company could decline his complaint, and take up to 8 weeks to do so. He would then have to appeal to the FOS, which would take up more time. There is of course no guarantee that the FOS would rule in his favour, but given my reasoning above I would guess that they would. However, going down this route the orignal poster would run the risk of being charged the ERC without first knowing if it was to be waived/refunded.

The customer is free to phone up his lender, state his case, make them aware of the completion deadline and say he wants to raise a formal complaint. There is a chance that the complaint will be looked into by someone before the deadline and the ERC waived.

There is also every chance that the complaint will be declined by the firm or not investigated before 23 March, however, as the customer has nothing to lose by complaining it is perhaps worth a try

kingstreet

In the case of a fixed rate, the early repayment penalty is required to meet the charges made by the rate-swap counterparty, not the lender itself.

The rate-swap has a fixed end date, not a number of payments.

In addition, the borrower's mortgage may be part of an RMBS and unbundling such a security involves the lender in extra work and costs.

the_money_pit

We are tied into a repayment mortgage of 6.25% for 5 years. The 5 year period is up November 2012. I understand that we went into the deal voluntarily, but totally on the advice of the bank Mortgage Advisor. My question is, why can the bank not be held accountable for advice which was incorrect, ie "the mortgage rates are going to rise sharply". We would NEVER have tied ourselves into this deal without their inaccurate prediction and scaremongering.