ERC at end of fixed deal

Dmp80

I'm on a fixed rate mortgage which expires at the end of September. For various reasons I've had to sell my house and I will be moving into rented accommodation.

I still have 3 more payments to make before the fixed period ends, 1st July, August and September. July and August will definitely be paid before the house sale completes, but it seems likely the house will complete before my September payment. I'm trying to push it back to after my September payment

Assuming my house sale completes just after my September payment, I have been told I will still have to pay the full penalty if the mortgage is ended before the end of September, which seems hugely unfair as I would have paid all payments on the deal at this point.

Does anyone have any experience of this and what I could do to avoid the ERC with only a month to go? The mortgage is with Halifax and their call centre is not being very understanding of this.

If it competes just before September I would have assumed that I could have just paid the September payment early to avoid the charge, but this doesn't appear to be an option.

I am looking at other options like delaying the completion of the sale, but the sale has already fallen through previously and I'm trying not to create any further delays.

Any advice or experience you could offer would be appreciated.

Thanks

amnblog

The early repayment period has a set end date. If you do not want to pay the early repayment penalty, you need to delay your sale completion accordingly.

TrickyDicky101

It would be interesting to see what the FOS would make of this situation as the ERC is not meant to be punitive but what I presume to be a reasonable assessment of the cost to the bank in ending the fixed term early. Doesn't really help you though seeing as you will need to pay the ERC if you complete before the end of September otherwise you may be at risk of failing to complete and thus open to legal action from your purchaser.

kingstreet

The entire penalty charge is due to the market counterparty who provided the rate-swap for the fix regardless of repayment on day one of the mortgage, or the day before it expires.

The only way to avoid it is to repay the mortgage only after it expires.

dunstonh

I have been told I will still have to pay the full penalty if the mortgage is ended before the end of September, which seems hugely unfair as I would have paid all payments on the deal at this point.

With a specific date, it is a line in the sand. You feel it is unfair but what if they had a 4 week grace period and you were the wrong side of that by a week. You would feel that was unfair too. No matter what date/line in sand they give, there will always be people that are just a bit short of it.

You often find the lenders do give a bit of tolerance but you have to go beyond the first line call centre staff. You need someone with discretion. Call centre staff dont have any.

TrickyDicky101

kingstreet wrote: »

The entire penalty charge is due to the market counterparty who provided the rate-swap for the fix regardless of repayment on day one of the mortgage, or the day before it expires.
.

This is not true - the IRS would have an exit cost but that would be based on prevailing market rates at the time of attempted exit. There is no direct link between the ERC and subsequent exit cost and the ERC is certainly not directly attributable to the IRS counterparty (rather the ERC is representative of the 'cost' of transacting the IRS for the bank at the time the IRS was first entered into).
A single mortgage is also highly unlikely to represent an entire funding tranche arranged by the bank.

It is probably arguable that there could be *some* costs incurred by the bank in receipting the mortgage proceeds anywhere up to 30 days before the fixed term ends, but I think the bank would be on a sticky wicket claiming that those costs were the entire ERC. Some portion at least would look like a punitive charge to me (although FOS may well see it differently).

kingstreet

Thanks for the clarification.

Isn't there a good chance FOS has looked at this already and decided it can't act? It's a fairly recurring issue...

Is the ERP issue likely to be influenced by the mortgage being part of a RMBS?

Dird

Am I right in assuming the interest would be pro-rota so the penalty shouldn't be so bad?
e.g. if you pay 1 day before the end of the fixed period and have 1% ERC charge would it be debt*0.01/365days? Or you pay the whole 1% for the year?

kingstreet

Amount being redeemed x %.

dunstonh

Here is a FOS decision on one that was 6 weeks before expiry:
http://www.ombudsman-decisions.org.uk/viewPDF.aspx?FileID=18722

Couldnt find an uphold decision. Although i didnt search all 120 uphold decisions. Whereas the rejection on this one was on page 1 of the 490 rejections (for the term ERC)

TrickyDicky101

Do prior decisions bind subsequent FOS deliberations? I assume probably not although I would think it would at least act as guidance?

Either way, that probably isn't good news for the OP.