Unfair mortgage early repayment charges

Argiebargie

Hello, I'm new to this and would appreciate some advice and opinions. We currently have 11 months left on a five year fix with Santander. we are selling up and paying cash for a property and so will be mortgage free. However, the ERC is £6250 while the current monthly repayments are £336. Therefore £336 x 11 months is £3696 - a lot less than the ERC. How can this be fair and reasonable and a reflection of the costs incurred by Santander which, according to the Financial Ombudsmen, is what it is supposed to be?
Opinions and comments welcome please.

ACG

If you did not agree to the terms and conditions of your Mortgage offer, why did you complete on the Mortgage?

The repayments are nothing to do with the costs they will incur for repaying the money early in addition to the money they will lose in interest. If your Mortgage was a 6 year term, the repayments will be much higher than a 26 year term...so they have no realy baring on the situation as far as I am aware.

My understanding is that they are allowed to be generic for the people that apply for a particular Mortgage. It is not reasonable for them to sit and work out ERCs for each individual customer.

Why not port the mortgage over to the new property? You will have to pay legal fees and valuation fees but it will save you paying the ERC.

Argiebargie

Thanks ACG. My point is that if I were to continue paying the £336 per month for the remaining 11 months they would receive £3696. Therefore, if I repaid now, and there was no ERC, they would be £3696 short of what they were due to receive - not £6250. £3696 should therefore be the ERC as this would keep them in the same position as if I continued paying for the remaining 11 months and I would be happy to pay this. Regarding as to why we agreed to the terms, all I can say is that circumstances change.

Pixie5740

You are missing the point. You agreed to the ERC penalties when you signed up for the mortgage it's too late to decide you find them excessive.

csgohan4

whether the ERC is fair or not is irrelevant.

You signed up to it and you legally have to pay it if you want to break the agreement

Argiebargie

So this excerpt from the Financial Ombudsman site is meaningless?:

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).

If an early repayment charge is unfair, the consumer is not bound by it - even if they knew about it. The relevant rules do not allow a "reasonable" charge to be substituted.

dunstonh

How can this be fair and reasonable and a reflection of the costs incurred by Santander which, according to the Financial Ombudsmen, is what it is supposed to be?

How is it unfair and unreasonable?
The bank has borrowed money from savers/money markets which it has to pay. By you wanting to break the contract, it will still have to fund its commitments. So, why should Santander cover your bill. And if Santander pay it that means other customers will suffer the brunt.

My point is that if I were to continue paying the £336 per month for the remaining 11 months they would receive £3696.

Your monthly payments are irrelevant. They are factored into the original agreement as not being subject to an ERC. It is the capital outstanding that is important.

egarding as to why we agreed to the terms, all I can say is that circumstances change.

And you will have to pay the consequences of that decision. You and the lender entered into an agreement to honour the terms set out.

The FOS have no issue with ERCs nowadays. There were some back in the 90s which they have ruled on but that was due to poor quality contracts. This effectively ceased to be a problem as those mortgage deals expired and the changes in Oct 2004 when mortgage regulation started meant there was lot of standardisation that was set by the regulator. So, mistakes on ERCs are very uncommon nowadays.

The FOS rejects most ERC complaints unless there is evidence of incorrect information being given. Santander had 30 ombudsman decisions against them vs 122 in their favour in respect of "ERC". The ones against all seem to have evidence of incorrect information (typically porting).

The typical rejected complaint by those saying its unfair: (copy and paste from an actual decision):

I have considered all the available evidence and arguments to decide what is fair and
reasonable in the circumstances of this complaint.

The ERC is set out clearly, unambiguously and prominently in the mortgage offer. I am
satisfied that Mr H was made aware of the ERC before he agreed the mortgage.

The mortgage conduct of business rules say that the ERC should be a reasonable
pre-estimate of the costs incurred as a result of the mortgage being repaid early – but a
mortgage lender does not have to pre-estimate its costs for each mortgage individually.

Santander has now provided a more in-depth explanation about the way it calculates its
ERC. I don’t consider I could fairly say that the ERC did not represent a reasonable preestimate
of the costs to Santander of the mortgage being repaid early. And in my experience
it is not out of line with the amount charged by other lenders.

I do not consider Santander has applied the ERC unfairly.

So this excerpt from the Financial Ombudsman site is meaningless?:

No. it just means your reading of it is not what it means and not how it is interpreted. The key things being that it is not on an individual basis but the overall deal and the terms have to be out of line of normal expectation.

Thrugelmir

Argiebargie wrote: »

Hello, I'm new to this and would appreciate some advice and opinions. We currently have 11 months left on a five year fix with Santander. we are selling up and paying cash for a property and so will be mortgage free. However, the ERC is £6250 while the current monthly repayments are £336. Therefore £336 x 11 months is £3696 - a lot less than the ERC. How can this be fair and reasonable and a reflection of the costs incurred by Santander which, according to the Financial Ombudsmen, is what it is supposed to be?
Opinions and comments welcome please.

Why did you choose the product at the outset. If knew the terms on offer in the contract.

Would you be happy if Santander had increased the interest rate?

Argiebargie

We chose it because we thought we would stay in our current home for many more years than five but circumstances change so now we are moving.

What I don't understand is, if the ERC is supposed to reflect the real cost/loss incurred by the lender, then how is it the same percentage throughout the life time of the discount when clearly the loss would be greater if repayment was made in Year 1 than if made in year 5. And, how come some lenders have a sliding scale of charges (which seems logical) and others don't.

AnotherJoe

Perhaps because Lenders have an amount of leeway to allocate the ERC how they want within reason, Flat rate, sliding scale, whatever ?

glentoran99

Argiebargie wrote: »

We chose it because we thought we would stay in our current home for many more years than five but circumstances change so now we are moving.

What I don't understand is, if the ERC is supposed to reflect the real cost/loss incurred by the lender, then how is it the same percentage throughout the life time of the discount when clearly the loss would be greater if repayment was made in Year 1 than if made in year 5. And, how come some lenders have a sliding scale of charges (which seems logical) and others don't.

why do some lenders charge higher interest rates than others?