ERC Mortgage charges...again

surrender_in_pity

I will be brief, I know this topic arises again and again but heyho.


My situation is thus, I am in a position where I am due to sell my house, it has a mortgage of £98000 remaining and has 6 months left of an 5 year fixed rate mortgage with a interest rate of 3.29% and ERC fee of 5% fixed for the whole term.


There is no possible way I can avoid the sale and I'm not moving to an new property. I'm moving away to care for a relative and need to equity to help me do this. So I cannot port this deal.


The interest the bank would gain from me remaining as customer is £1621.
The price of the ERC is £4900.


I realise I made the agreement, and I haven't been misled, I am happy to pay the remaining interest that would have been due.
My gripe is £4900 seems way excessive.
Does anyone have experience of recourse?
The charge should be fair and reflect the loss the lender, as per financial ombudsmen guidance.


Is there any case for an appeal, before anyone gets angry and states a contract is a contract is a contract. I am merely after genial advice/experiences.

ACG

The lender will get the money from the money markets, if they get your money back early and pay back the money early, there is a chance they will incur costs beyond £1,621 and so the cost to them is reflected in the ERC.

They are a lender who lend money out to thousands of different people each year. They can not really sit down and say ok, we will charge you £1,621 in line with lost interest and keep hold of the money for 6 months before paying it back - it would cost them more in paying staff to use common sense that it would do to use a one size fits all.

That being said, there was a post on here where the poster asked a similar question and everyone said no chance (I did not, but I was thinking it) and he/she came back to say the lender had agreed to waive the ERC - I think it was HSBC or first direct?

So, a contract is a contract is a contract and by rights assuming the lender can justify the 5% ERC, they have no reason to waive it. But there is no harm in asking.

surrender_in_pity

Thanks for the reply.


That's exactly what happens with personal loans, and the 58 day interest rule on certain levels of lending


Now I am not saying let me off scot free or on a lower personal loan early repayment level.
I am not a high level banker myself so I pay my way.


You can look on money market swap rates historically.
Of which it's safe to assume they already have a margin for risk on that. All scenarios of repayment should be baked in to the money they lend consumers.
x amount + defaults + early payers + % of people attracted to a deal whom then lax onto a SVR through passivity.


My gripe isn't with them making money or having to cover costs, it's £1621 turning into £4900.


It's 302% of the interest they would have made.


I thank you and I will try my dandiest to convince them as you suggest.

Thrugelmir

surrender_in_pity wrote: »

My gripe isn't with them making money or having to cover costs, it's £1621 turning into £4900.


It's 302% of the interest they would have made.

The lenders costs are front loaded though. For them to make their expected gross profit the loan needs to run it's full term. Lenders margin on lent mortgage advances is actually very low. The notional profit on your loan will cover those those that default etc. Far too simplistic to single out your individual loan for special treatment. Lenders run mortgage books of several thousand loans per tranche.

Nothing to stop to you overpaying by whatever you can afford to minimise the ERC.

dimbo61

Do not sell for 6 months.
No ERC to pay.
Simple really
Leave the property empty or remove as much clutter as possible

AliceBanned

Why can’t you try to delay the sale? Former owner of my flat tried to do this possibly for similar reasons. I did refuse as I would have been homeless but may be worth a try.

Might be worth speaking to your lender about the circumstances with your relative in case they could be more lenient? Unlikely because you have benefitted from lower interest on the fixed deal but worth a stab maybe.

surrender_in_pity

Delay is difficult due to have no ready cash and other debt and immediate requirements such as needing to pay rent, and help my relative out.
I will give the bank a go,they seem a reasonable bunch to deal with on a 1-1 basis.
My complaint is that the cost should reflect the loss to the bank. The argument made by several on here is that it does and is representative.
Thanks for the cordial advice.

kingstreet

It's not the lender's loss that's the issue.

The market counterparty who supplied the rate swap to enable the lender to offer those terms did so at a specific rate for a specific period. It is breaking those terms which triggers the ERCs.

That's why it's cut and dried the ERC applies until the agreed date and not one day earlier.

kingstreet

ACG wrote: »

That being said, there was a post on here where the poster asked a similar question and everyone said no chance (I did not, but I was thinking it) and he/she came back to say the lender had agreed to waive the ERC - I think it was HSBC or first direct?

It would have to be a lender which self-funded its mortgage products from deposits and didn't arrange a rate swap in the market to hedge savers' returns.

Brock_and_Roll

kingstreet wrote: »

It would have to be a lender which self-funded its mortgage products from deposits and didn't arrange a rate swap in the market to hedge savers' returns.

Is there a lender that DOES NOT use interest rate swaps to hedge its interest rate exposure on fixed rate mortgages?

I would have thought that the volume of mortgages, say on a 3yr fix, would hugely outweigh any savings on a 3-year fixed bond - hence the need to protect the lender against falling rates.

Thrugelmir

Brock_and_Roll wrote: »

Is there a lender that DOES NOT use interest rate swaps to hedge its interest rate exposure on fixed rate mortgages?

I would have thought that the volume of mortgages, say on a 3yr fix, would hugely outweigh any savings on a 3-year fixed bond - hence the need to protect the lender against falling rates.

Mortgage lenders also issue securitised debt in the form of RMBS.

Lenders such as Tesco Bank tap the retail deposit market for funds on a regular basis.

If there's an opportunity to lock in a "profit" rather than be exposed to the whims of the money markets. Then finance houses tend to do so. Very little new business is now written at a floating interest rate. The BOE mortgage loan support schemes are coming to a close. Requiring lenders to seek funds from alternative sources.