Mortgage charge.

terabyte

My girlfriend and I are buying a house together, she owns a flat currently which she is selling, I also own a flat which I’m selling. Both of us were on fixed term mortgages with ERC’s. As mine had the higher penalty (3 years left and something like 4K as a penalty) I ended up applying for a port of my mortgage to the new property which has been successful and we’re just going through the motions to exchange contracts etc.

My girlfriend’s mortgage is due to expire in September, it was a 5 year fixed mortgage (with what frankly has to be the worst rate imaginable but hindsight is always 20/20.) The penalty for leaving with 90k outstanding is £1800 (2%), this is likely to be invoked in late July/August say August the 1st. The penalty would disappear in September where the offer period is over (Sept 1st) so for 30 days we stand to lose nearly 2k. 

What’s more the bank when we asked if we could port across to our new property refused because they wouldn’t be the “primary lender” (so would not have had first dibs if we defaulted), though we do not have this in writing.

Under these circumstances does the 1.8k seem proportional to you? It seems absurd to me, but it’s all there in black and white ink in the t&c. So I’m wondering what else is all there to protect the consumer from ridiculous fees. Keeping in mind this was a 5 year mortgage, if you paid early in the first 4 years I could understand but this is the last 30 days of a mortgage. 1.8k does not seem proportional in this case to administer something they would have administered anyway in 30 days.

Edi81

Thats what was signed up to 5 years ago - all transparent and fair.

MovingForwards

It's what's your GF agreed to when she took out the mortgage originally. Therefore you are saying your GF needs protecting from herself.

The option is to delay completing the sale until the 5 years are up.

You say worst interest rate imaginable, I'm curious as to what this is and who the lender is.

terabyte

Edi81 said:

Thats what was signed up to 5 years ago - all transparent and fair.

Yes I already acknowledged how transparent it is, but I don’t think it’s fair, these charges are bonkers when put in context. What are they supposed to reflect in terms of costs to the bank? The monthly repayment is £400, the interest they’re missing out on is nowhere near 1800

terabyte

MovingForwards said:

It's what's your GF agreed to when she took out the mortgage originally. Therefore you are saying your GF needs protecting from herself.

The option is to delay completing the sale until the 5 years are up.

You say worst interest rate imaginable, I'm curious as to what this is and who the lender is.

Don’t be rude, I’m not saying she needs protecting from herself, nor did I imply it, it’s taken us a while to move so at the time we had committed and budgeted to pay off the mortgage erc, it’s taken so long though being only 30 days away it seems disproportionate. She’s actually still committed to paying it off, I’m just seeing if there’s a basis for discounting the amount to what the bank is actually missing out on, and trying to understand what that charge is supposed to reflect. 

Charges are supposed to reflect costs, not be punitive. 

Overdraft fees are a past example of what people signed up to, yet those have all been reviewed and seen to be unfair; by the same reasoning one would conclude “so don’t go into overdraft”. Clearly that’s silly, the regulator thought so too. 

Yes the option to wait until September is on the table, this is a what-if scenario though if it completes early.

davidmcn

terabyte said:

Edi81 said:

Thats what was signed up to 5 years ago - all transparent and fair.

Yes I already acknowledged how transparent it is, but I don’t think it’s fair, these charges are bonkers when put in context. What are they supposed to reflect in terms of costs to the bank?

You'll probably find they do reflect the costs to the bank - they'll have borrowed the money wholesale with similar penalties for early repayment.

MovingForwards

I'm not being rude, merely highlighting what you said:
" It seems absurd to me, but it’s all there in black and white ink in the t&c. So I’m wondering what else is all there to protect the consumer from ridiculous fees."

I appreciate it's not what you wanted to hear, but it is what your GF signed up to and agreed to nearly 5 years ago. Unfortunately, it's the risk we all take when signing up for any fix and the costs have to be factored in when selling / remortgaging.

Of course, she could ask if they would wave them, but the only realistic options are waiting until September or paying them.

Thrugelmir

terabyte said:

What’s more the bank when we asked if we could port across to our new property refused because they wouldn’t be the “primary lender” (so would not have had first dibs if we defaulted), though we do not have this in writing.

Main stream mortgage lenders offer products on basis of holding 1st charge on the property. 
2nd charge lending market is at a far higher rate.

Your choice to remain with the existing lender or not. 

blue_max_3

Has your girlfriend overpaid this year? If not, do you have 10%? If you do, you can pay off 10% (usually the max) and reduce the ERC by 10%. This can be done quite quickly. Just something I did successfully.

terabyte

blue_max_3 said:

Has your girlfriend overpaid this year? If not, do you have 10%? If you do, you can pay off 10% (usually the max) and reduce the ERC by 10%. This can be done quite quickly. Just something I did successfully.

Nice, I’ll take a look at that. No overpayment made.

> You'll probably find they do reflect the costs to the bank - they'll have borrowed the money wholesale with similar penalties for early repayment.

Thanks I guess that makes a bit more sense.

dunstonh

Yes I already acknowledged how transparent it is, but I don’t think it’s fair, these charges are bonkers when put in context. What are they supposed to reflect in terms of costs to the bank? The monthly repayment is £400, the interest they’re missing out on is nowhere near 1800

Do you know how mortgage financing works?   Lenders have to obtain the funds to lend them to you.  For deals, that means they obtain money from savers in fixed term deposits who are on a guaranteed rate until the maturity date.   They still need to be paid. They also use money markets.  Those investors need to be paid and with institutional funding there can be exit charges the lender has to pay to get out those early.    The ERC exists for good reason.

 So I’m wondering what else is all there to protect the consumer from ridiculous fees.

The conveyencing solicitor tells you the risks of tie in.  They key features illustration tells you the risks of tie in. The mortgage broker tells you the costs of tie in.   The contract letter/offer letter you sign tells you the tie in.

Now it is possible to scrimp on the conveyencing service and not get full advice.    It is also possible not to use a mortgage broker and not to read what you are signing.   In those scenario, the person only has themselves to blame.

There is also the regulator who has no issues with ERCs.   And the FOS who also has no issue with ERCs.   Both of which understand how and why they exist.

Keeping in mind this was a 5 year mortgage, if you paid early in the first 4 years I could understand but this is the last 30 days of a mortgage. 1.8k does not seem proportional in this case to administer something they would have administered anyway in 30 days.

There will always be people who will be one day the wrong side of a line in the sand.  If you give one month grace, then there will be people 1 day the wrong side of that.  If you are in the last 30 days of a tie in, you would be nuts to set a moving date the wrong side of it.