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

dunstonh

You do not have to change the terms of the mortgage when you switch from interest only to repayment. The repayment method has nothing to do with the lending terms.

Mortgage setting up charges are retail charges which are published and known about before you set the mortgage up. You have no chance of claiming any of those back as they are valid and legal.

fedupbeingbroke

Hi, we were told we had to cancel the existing mortgage and then apply for a new one, there was no option of just changing it.

dunstonh

You could complain about that as that is wrong.

fedupbeingbroke

Brilliant, thanks. I'm going to write aletter this weekend. I'll keep you posted. Thanks for all of your help, it's much appreciated.:beer:

MarkyMarkD

Whilst dunston's advice is sensible, it also sounds like you didn't really know what you were doing and that you might easily have said that you wanted to switch to a new product, rather than simply changing payment method. A colleague of mine is currently going through the complaints mill with NR and they are not at all eager to admit they are wrong - if there is any documentation showing that you were given a choice and CHOSE to switch product, and pay those penalties, then they won't pay you back.

fedupbeingbroke

Thanks Markymark. I know we asked to change as we were flabbergasted when they said we had to start a new mortgage and that there was going to be a charge for it. We have also kept all paperwork from the time and there is no mention of other options open to us. We feel like total mugs now, but at the time just took their word for it. Thanks for your reply and I hope your friend has some luck.

madge_markham

Hi there. I have a base rate tracker mortgage with an ERC which expires in April and I want to sell my house in order to rent another house. Given that I will not be getting a mortgage from a competitor and that the banks costs are (at worst) very low, it should be in the bank’s interests to waive the ERC (the alternative being waiting until April). Additionally, as a banker (on the investment banking side), I know that the credit crunch has stretched bank’s balance sheets at the moment to the extent that 6 month inter-bank money is at 6.25%. If they unwound my mortgage now, they would be effectively borrowing 6 month money at 0.50% below the market rate, so in all ways they should want to do it. However, I also recognise that if I just go back to the person at the bank who sold me the mortgage, she is just going to say “no”, because it involves extra work and no upside for her. Who do you think I should approach in order to waive the ERC in advance and how should I do it? The mortgage itself is for around £500k, and I don’t mind paying a (relatively) small amount, say <1k, but I simply cannot pay the 3% ERC. Many thanks in advance!

dunstonh

Given that I will not be getting a mortgage from a competitor and that the banks costs are (at worst) very low

They are not very low. The ERC exists to protect the lender from the costs involved from you pulling out from mortgage early. A lot of lending is secured by borrowing themselves. The ERC covers the cost of them continuing that borrowing.

If they unwound my mortgage now, they would be effectively borrowing 6 month money at 0.50% below the market rate

As an investment banker you should know that when banks borrow money, the terms tend to be fixed and cannot be unwound.

but I simply cannot pay the 3% ERC

Wait until April then. Lenders do not back down on the ERC.

madge_markham

dunstonh wrote: »

They are not very low. The ERC exists to protect the lender from the costs involved from you pulling out from mortgage early. A lot of lending is secured by borrowing themselves. The ERC covers the cost of them continuing that borrowing.



As an investment banker you should know that when banks borrow money, the terms tend to be fixed and cannot be unwound.


Wait until April then. Lenders do not back down on the ERC.

No, I don’t think you understand: the net effect of unwinding my mortgage now is 6 month money at 5.75% to them.

As you say, they financed lending me my mortgage in some way, probably by re-packaging it and selling it on. But it doesn’t matter – they do not need to unwind that side of it, because if they just unwind my side of it, as I say, the effect is cheap term money to them.

As for costs, I do not see how this could “cost” £15k. This is not a fixed rate at which the bank would lose money by unwinding, in fact as I demonstrate, the bank would make money. All it would take is a letter – do they really claim that costs them £15k?

This would not be the bank “backing down”. The point I am making here is that it is in the bank’s interest to waive the fee and unwind the mortgage now. What I need to find out is the likely title or position of the person who is senior or savvy enough to understand this and want to do something about it.

MarkyMarkD

No. It's in the bank's interest to require you to pay the ERC due.

Costs are irrelevant.

The fact that they may be better off if you redeem early is irrelevant.

You agreed to pay the ERC - it's part of your contract and it's legally binding.

You will not get anyone at the bank to see your perspective.

Can you not see that you are suggesting it's worth the bank waiving £15,000 (3% of your balance) because they will benefit by c.0.5% of your balance for 6 months - which is only £1,250 - and that your position is therefore completely illogical?

ERCs are not symmetrical and not based on costs, precisely because consumers weren't prepared to take the rough with the smooth. NatWest used to charge scientifically calculated ERCs and consumers got very upset at being asked to pay £50,000 or more when they sought to redeem early when rates fell through the floor. NatWest customers in your situation under their original ERC rules wouldn't have had to pay a penalty.

It's consumer power and whinging which has led to all lenders charging "simple" (but, from your perspective, illogical and unfair) ERCs.