Mortgage credit Directive 2015 And early repayment charges

Hansibal

Has anyone successfully challenged their ERC based on what the The Mortgage Credit Directive Order 2015 states about it:

(4) The creditor is entitled to fair and objective compensation, where justified, for possible costs directly linked to the early repayment but the creditor must not impose a sanction on the borrower and the amount of compensation must not exceed the financial loss of the creditor.

I have been pre approved a Santander mortgage which carries an ERC of 5% for the entire 5 year term. I find this a bit of a risk, as even though I don't have any intention to move, 5 years is a long term.
As I read the directive, and the EU directive on mortgages that it is directed from, a bank can never charge you more than the actual cost. How is this calculated in this country? I would argue that as an absolute maximum it is the interest they would get for the remainder of the term (which would be in my case 1.49% per year). A more realistic calculation would be like it is done in the Netherlands (where this was actually a national mis-selling scandal a couple of years ago when the directive came in) where they look at the current rates available as well. As an example:

Mortage 100k 5 years for 3% fixed
Pay off after two years:
Bank offers, at time of repayment, 3yr fixed mortgages for 2.5%, so the cost of the bank are 0.5% for 3 years, maximum 1.5% total.

Before I cry mis-selling scandal again, has this ever been tested with banks or in court?

Kind regards,

Hans van Baalen

Thrugelmir

To mount a challenge you’ll need more than just supposition. Some hard facts would help. If the product isn’t suitable find something else.

[Deleted User]

The banks raise funds from the money markets. They do this so they can give you a mortgage.
The agreement they have with the people they raise funds from has early repayment charges.
If you pay back the funds early then the bank gets penalised by thr person they borrowed the funds from
They pass this on to you.

If you don't like santanders approach, you are free to take hsbcs offering who do 5% in 1st year down to 1% in 5th year. (as an example)

I think the fact its a free market with dozens of mortgage companies allows a certain element of variation in fee structures. If you don't like 1 you go for a different one.
It might be tighter regulated if there was only 1 or 2 mortgage companies to choose from

ACG

Do you really want to take out a mortgage with a lender where you think there is a possibility of you wanting to complain, take it to the ombudsman and potentially court if you disagree with both of their assessments?

Would it not be easier to find a lender who does what you want even if costs you an extra fiver a month?

The banks have been told they have to be able to justify their charges, the fact they are charging like that makes me think they can probably justify it (or at least they feel they can).

kingstreet

When a lender arranges a rate swap to offer a fixed rate product, three things go in the melting pot.

First is the rate.

Second is the fees.

Third is the early repayment penalties (ERC).

Imagine a spectrum of each one, like a slider. As you move the rate slider from high to low, the fee slider is moving from low to high and the ERC slider is changing from eg 5/4/3/2/1 to 5/5/5/5/5.

You choose the product which suits you best. You don't get to win on the swings and on the roundabouts and on the slide.

Hansibal

Thank you all for your remarks regarding my question.

The banks raise funds from the money markets. They do this so they can give you a mortgage.
The agreement they have with the people they raise funds from has early repayment charges.
If you pay back the funds early then the bank gets penalised by thr person they borrowed the funds from
They pass this on to you.

Or, they lend the money that you paid back to another person, hence the cost are calculated as a difference between your rate and the current rate. The fact that I pay back my mortgage doesn't have to mean the bank puts the money back to the market.

Do you really want to take out a mortgage with a lender where you think there is a possibility of you wanting to complain, take it to the ombudsman and potentially court if you disagree with both of their assessments?

No, not at all, my intention is to keep the mortgage until at least the fixed rate ends. It just surprised me that they can get away with potentially charging me 5% if I pay back my mortgage one month before the end of the term, knowing that they can't charge you more than the cost.

I think the fact its a free market with dozens of mortgage companies allows a certain element of variation in fee structures. If you don't like 1 you go for a different one.

That is not completely true, it's a regulated market, and the rules don't allow early repayment charges higher than the cost to the banks. But indeed, I might choose a different product.

The banks have been told they have to be able to justify their charges, the fact they are charging like that makes me think they can probably justify it (or at least they feel they can).

They also felt they could add payment protection insurance to all sort of debt products, so forgive me being skeptical about the banks' moral compasses.
Hence my question if this was ever challenged, which at least as far is I can gather from these responses, hasn't.

[Deleted User]

Hansibal wrote: »

Thank you all for your remarks regarding my question.



Or, they lend the money that you paid back to another person, hence the cost are calculated as a difference between your rate and the current rate. The fact that I pay back my mortgage doesn't have to mean the bank puts the money back to the market.



No, not at all, my intention is to keep the mortgage until at least the fixed rate ends. It just surprised me that they can get away with potentially charging me 5% if I pay back my mortgage one month before the end of the term, knowing that they can't charge you more than the cost.



That is not completely true, it's a regulated market, and the rules don't allow early repayment charges higher than the cost to the banks. But indeed, I might choose a different product.



They also felt they could add payment protection insurance to all sort of debt products, so forgive me being skeptical about the banks' moral compasses.
Hence my question if this was ever challenged, which at least as far is I can gather from these responses, hasn't.

Its been challenged plenty times through FOS (which is no friend of the financial industry). Ive spent a bit of time searching but cant find a single case where the ERC complaint has been upheld apart from when its been upheld for other reasons such as admin mistakes or wrong advice been given. The actual existence of the ERC itself is not something the FOS have an issue with

https://www.financial-ombudsman.org.uk/data-insight/ombudsman-decisions/SearchDecisions?Keyword=ERC&BusinessID=&IndustrySectorID=&DateFrom=&DateTo=&Url=&Comment=&SecurityID=f9f180e545c156884918366c7cdbfce6ffee5ea4&Captcha=&Captcha_Timestamp=1575982748&start=10