Has anyone challenged mortgage redemption penalties???

martin1959

I will be paying off my mortgage as selling home 2 years into 3 year fixed rate...and will have a 2% penalty. I can reduce it a bit by paying 10% of o/s balance off just before completion, but it is still £2500 I would rather not pay!!


Before anyone says it, yes I knew there was a penalty, and I accepted it at the time. However, I am always looking for a bolt hole to get around 'the machine'!


I have found this on the Financial Ombudsmans web site and wonder if it is worth a go...


The lender's actual loss if a mortgage is repaid early is also a consideration. An early repayment charge may be unfair if it is more than the actual loss to the lender (except if it was a genuine "pre-estimate" of loss when the agreement was entered into).


Doesn't a mortgage early repayment charge constitute a penalty?

If an agreement includes an early repayment provision, then it is clear that early repayment of that agreement is not a breach of contract - as the consumer is entitled to redeem the mortgage early.

However, an early repayment charge might be argued to constitute a penalty, if it exceeds what was a genuine "pre-estimate" of loss at the time the agreement was entered into. In this case, the charge will be unenforceable even if the consumer knew about it before they signed the agreement.


When I took this loan as a further advance 2 years ago, the Halifax were offering 3 year fixed rates to new borrowers and people moving home, of around 2%. However, the rates they were offering to existing borrowers borrowing more money were around 4.3%. Assuming they were buying tranches of fixed rates form the money market at the rates they were offering to new borrowers (2%) and I have been paying them 4.3% for the past two years, I cannot see how they will have 'lost' money by me repaying the loan early...They make lose some profit, but I feel they would struggle to say they will make a loss.


Any thoughts?

Thrugelmir

You entered into a contractual agreement in the full knowledge of the attached terms and conditions of the product. There's simply no grounds to dispute the charges. English contractual law is world renowned hence why it forms the basis of International Business law.

Nor is your assumption as to how the lender funds it's mortgage book correct.

xHannahx

What's your monthly interest in £s? 12 months interest at the relevant £s figure is there loss. The cost of providing the product is calculated over the fixed period hence fixed periods have typically high redemption penalties.

martin1959

Thrugelmir wrote: »

Nor is your assumption as to how the lender funds it's mortgage book correct.

The lenders buy tranches of funds from the money market to cover the fixed rate deals they offer.


Redemption penalties cannot be punitive and should reflect the actual loss to the Company.


If they were 'buying' tranches at the time for 2%, and lending to existing borrowers only at 4.3% I believe the penalty may be punitive.


The question was, has anyone ever contested the penalties.


Ultimately, whether I am right or wrong, I will look to claim the money back via money claim online. I appreciate if it goes to court I will likely lose, but there is the possibility for the sake of £2k they will not even contest it due to costs. And if they do, it will only cost me £50/£60.

Mortgage_Mark_2

20 years as a mortgage adviser for Halifax...

Takes further advance from Halifax....

Argues about contractual redemption penalty when it comes to settle....

Shocking. One example of why bank mortgage advisers maybe aren't the best perhaps.

martinsurrey

I think you are getting confused, about what is thier loss

the loss of the early redemption is the loss of your income stream, less the costs of funding that stream.

So in your example, if they lent at 4.3% and were borrowing at 2.3% thier "loss" is the 2% margin for the period you are redeaming early. so they are "losing" 2% if you redeam 1 year early and losing 4% if you redeam 2 years early.

you cannot possibly work this out on a fag packet as its all to do with swap rates and the likes in the month you took out the fixed rate.

martin1959

Mortgage_Mark wrote: »

20 years as a mortgage adviser for Halifax...

Takes further advance from Halifax....

Argues about contractual redemption penalty when it comes to settle....

Shocking. One example of why bank mortgage advisers maybe aren't the best perhaps.

mmm.....my mortgage was already with Halifax, so who else could I have taken a further advance with... and before you say it, the funds were needed within 10 days, so there was no opportunity to remortgage. And seeing as part of the mortgage was already on BoE base why should I.


I am not saying it is necessarily unjustified, but I believe it is worth a challenge. If people did not challenge anything, then all those issued with punitive 'Parking Invoices' as opposed to Penalty Charge Notices would still be paying them...


Assume then you are a broker? Yes 20 years as a bank MA did teach me that many independent brokers would 'fiddle' mortgages where they could. I lost count of the number of customers coming in to arrange a new mortgage who were surprised I would not exaggerate their income like the 'broker' had done on their previous application. I even had cases of the broker filling in the whole application form and getting the customer to sign it without ever reading it through.
I take credit for having at least 4 brokers struck off from the lending panel......

lee111s

You must be bored. Find a hobby!

dunstonh

Some of the early ERCs that existed 10-15 years ago could be viewed as unfair. Back then, you often didnt see a tapering of the penalty. The FOS didnt like those.

Some would also go on beyond the time of the deal. Again, these were not liked.

However, nowadays, the penalties taper down (e.g. 5% dropping 1% a year for the period of the deal) and expire when the deal expires. These are considered fair.

When I took this loan as a further advance 2 years ago, the Halifax were offering 3 year fixed rates to new borrowers and people moving home, of around 2%. However, the rates they were offering to existing borrowers borrowing more money were around 4.3%. Assuming they were buying tranches of fixed rates form the money market at the rates they were offering to new borrowers (2%) and I have been paying them 4.3% for the past two years, I cannot see how they will have 'lost' money by me repaying the loan early...They make lose some profit, but I feel they would struggle to say they will make a loss.

Fixed rate mortgages are usually priced on the cost of them borrowing the money to fund that deal. This could be through institutional investors on the money markets or fixed term deposits to the retail markets. Both have obligations that are set in stone regardless of what happens to interest rates in the interim.

The lender may also seed certain rates with its own money to attract new borrowers knowing that some will stay beyond the deal. Or it could be that there is no profit on a given deal via the interest rate but it is the product charge where they make the money. Each deal can have different funding methods. That is all at commercial level and not within the remit of the FOS.

If they were 'buying' tranches at the time for 2%, and lending to existing borrowers only at 4.3% I believe the penalty may be punitive.

That is not a correct assumption.

Mortgage_Mark_2

martin1959 wrote: »

I am not saying it is necessarily unjustified, but I believe it is worth a challenge. If people did not challenge anything, then all those issued with punitive 'Parking Invoices' as opposed to Penalty Charge Notices would still be paying them...

Alternatively, park legally and you don't have to worry...

As for your last paragraph, can't really comment on other brokers but I actually find myself in a similar position to what you describe, turning away business based on what other brokers have done in the past, and I can guarantee you haven't had me/my company struck off due to this!

I don't quite get the thought process of 'it's worth a try' if you knew it was a contractual fee - you didn't quibble it at the time of taking the FA so why now? Make sure you check for any unwanted PPI too...!

ACG

You would not exaggerate figures (which is great, well done you for doing your job) but you would try to short change a company who paid your wages for 20 years. On top of that, you would try to short change a company who is doing exactly what they said they would do when you took your mortgage out.

Who needs morals.