Mortgage redemptiion fee - survey

peteraa59

I'm interested in finding out from members if anyone has taken out a long term mortgage with a lender. You are aware of the early redemption fee but you are advised by the lender that if you take out a new motgage with them then this will be waived. The problem being that when you apply for a new mortgage your lender makes things difficult. This leaves you faced with the choice of either losing a sale, or the house of your dreams or to go with another lender and pay the redemption fee. There are a lot of mortgages aimed at younger borrowers with low fixed rates set over 10-25 years. I can see this becoming a big problem with these mortgages and a concealed trap for borrowers.

To illustrate my point my daughter has fallen foul with HSBC lending at a fixed 1.99% over 10 years. Their adviser was aware that they were starting a family and would be moving but made it clear that there would be no fee levied if another mortgage was taken out with them. In the event HSBC gave an agreement in principal for a new loan, gave a figure they would lend and then reneged on this 3 weeks after a sale was agreed by offering just 60% of the requested amount.

I am just wondering if this is common practice and what experiences others have had that have led to them paying a redemption fee despite their best attempts to avoid it.

ACG

What you are describing is the ability to port the mortgage toa new property.
It is disclosed in the KFI and Mortgage offer.

HOWEVER, in order to port, you have to apply for the new mortgage and fit criteria at the time of application of the new mortgage. You my change yourcircumstances in that time and the lender may change their criteria in that time.

An AIP is exactly that...in principle. It is not a mortgage offer and it is still subject to underwriting.

Most lenders offer the ability to port and aip's, neither are a guarantee that you will be able to complete on a new property.

Thrugelmir

peteraa59 wrote: »

To illustrate my point my daughter has fallen foul with HSBC lending at a fixed 1.99% over 10 years. Their adviser was aware that they were starting a family and would be moving but made it clear that there would be no fee levied if another mortgage was taken out with them.

The advisor didn't guarantee your daughter a mortgage in the future as it's not within their remit to do so. Nor is the advisor in any position to give speculative advice as to an applicants financial circumstances in the future.

peteraa59

I would add we are talking about an accountant and a deputy headmaster whose salaries had improved between the original mortgage and the new application. There is an additional child. However in searching for new lenders there was no shortage of offers advancing up to 40% more than the amount refused by HSBC.

dunstonh

I would add we are talking about an accountant and a deputy headmaster whose salaries had improved between the original mortgage and the new application.

So, equally, they should know the importance of what they are agreeing to before they sign the contract.

The problem being that when you apply for a new mortgage your lender makes things difficult.

No they don't. People within normal lending criteria and not pushing any limits will find it as easy to get a mortgage as it always has been. Those pushing limits outside normal criteria will find it harder and that is why there may be difficulty.

peteraa59

dunstonh wrote: »

So, equally, they should know the importance of what they are agreeing to before they sign the contract.



No they don't. People within normal lending criteria and not pushing any limits will find it as easy to get a mortgage as it always has been. Those pushing limits outside normal criteria will find it harder and that is why there may be difficulty.

Yes and being intelligent people it was always there intention to take out a new mortgage with HSBC if they moved. They had proved to HSBC their income was within the income multiple limits and so much so they could have had more money from other lenders. In the end they got a good enough deal with another lender to recover this redemption fee over the next 5 years.

The point is if this is common practice then this fee should be factored in at the outset. I can see the point of having the penalty there to protect lenders from clients jumping from one rate to another. If you are happy with the deal you've got, wish to stay with them, easily meet the maximum multiple and get an AIP then you have to question whether the fee is fair. As I said there are more of these long term deals out there and I would imagine there will be more people falling foul of this in the future.

Thrugelmir

peteraa59 wrote: »

then you have to question whether the fee is fair.

The fee represents a commercial cost to the lender. Has nothing to do with fairness. In the example you quote. The interest rate levied was only 1.99% for 10 years. You can't have your cake and eat it as the saying goes.

dunstonh

The point is if this is common practice then this fee should be factored in at the outset.

That would make most people worse off. The majority go the distance with their fixed rate deal.

Kynthia

Was it a HSBC mortgage broker rather than someone independent who would advise them?

I can understand first time buyers and those who are inexperienced and not having done research beyind getting a mortgage not knowing that porting is not guaranteed. However generally most people know that you shouldn't get a fixed mortgage if it's likely you'll want to sell before the fixed term expires and porting is just a possibility if your plans change.

ACG

One of the conversations I have with clients is about how long they expect to remain the property for. If they say 3 years, I would never come back with a 5 or 10 year fixed deal. Regardless of how good the deal is, if they plan on moving they are stuck with that lender and things like you have stated can happen.

Nobody knows what will happen in their own future let alone whether or not a lender will make alterations to their own lending guidelines.

You probably will find people who were in the same position, but it does not mean the bank is in the wrong.