Repayment and Early Settlement Fees

Jam1q1

I recently redeemed a mortgage with my lender following the sale of the property. The terms of the mortgage were that an early repayment charge would apply whilst in the fixed rate period (fixed rate was not due to expire for another 2 years). Another term of the mortgage said that 10% of the capital could be repaid each calendar year without penalty (referred to as 'overpayments'). 
The early repayment charge has been applied to the full balance at the time of redemption. I have asked the lender why the 10% capital reduction allowance has not been taken into account before the fee was applied. The lender has advised that the terms of the contract state that the early repayment charge applies to the full balance and therefore they do not consider that the 10% capital reduction allowance is relevant in this situation. 
I have reviewed the mortgage terms and conditions and agree that no reference is made to this allowance in the wording regarding full settlement of the mortgage. However, I do not think that this is fair. I could have arranged to make a payment of 10% of the balance (with no charge) prior to the settlement, and then only had to pay the early repayment charge on the rest of the balance. Therefore, I feel that the fair thing to do, is to take into consideration the 10% allowance at any point of repayment (whether that be mid way through the contract, or at closing of the contract) and only apply the fee to the remaining balance outside of that. 
I do not think it is appropriate for the lenders response to be just to hide behind the contracts terms, when the terms themselves are creating or contributing to an unfair outcome for customers. 
Are my expectations realistic here, or is the response 'it's in the terms so it must be the right thing to do' an appropriate position for a lender to take?

davidmcn

I think what they've done is standard practice (we've had other threads here from people who have made the 10% payment in advance of redemption) so I suspect is competent, whether or not you think it fair.

K_S

@jam1q1 I've had a customer in the past complain to the lender about the exact same issue citing TCF (treating customers fairly), they got the proportionate ERC amount refunded at the investigator stage of the FOS complaint. It did take a few months though.

If you feel strongly about it, I would recommend making a formal complaint and seeing where it takes you. There's no cost involved at your end. Do use the MSE Resolver tool, it's excellent and will handhold you through the process of escalating it if needed.

Just to be clear, I'm not saying that you will succeed in your complaint, only suggesting an avenue to seek a refund. Good luck!

Thrugelmir

Jam1q1 said:

 I could have arranged to make a payment of 10% of the balance (with no charge) prior to the settlement, and then only had to pay the early repayment charge on the rest of the balance. 

There was nothing stopping you. Unfortunately it's simply not possible to adopt hindsight to argue a legal point. For an event that has passed. 

Polly05

Thrugelmir said:

Jam1q1 said:

 I could have arranged to make a payment of 10% of the balance (with no charge) prior to the settlement, and then only had to pay the early repayment charge on the rest of the balance. 

That's exactly what I did. So I owed as little as possible so paid the 2% of the lesser amount. 

blue_max_3

I did too. The charge is on the balance. If you didn't pay off 10%, then why would they discount it? Overpayments are optional, not obligatory.

dunstonh

The early repayment charge has been applied to the full balance at the time of redemption. I have asked the lender why the 10% capital reduction allowance has not been taken into account before the fee was applied. The lender has advised that the terms of the contract state that the early repayment charge applies to the full balance and therefore they do not consider that the 10% capital reduction allowance is relevant in this situation. 

You haven't made an overpayment.  You made a full redemption that exceeded 10%.   If you had done the 10% first then had a gap and then done the remainder then you probably would have had a reduced ERC.

I do not think it is appropriate for the lenders response to be just to hide behind the contracts terms, when the terms themselves are creating or contributing to an unfair outcome for customers. 

The alternative view is that you are trying to create a loophole to utilise an allowance that clearly wasn't intended to be used in your scenario.

Are my expectations realistic here, or is the response 'it's in the terms so it must be the right thing to do' an appropriate position for a lender to take?

You can try but I don't think you are being realistic.   Did you overpay the mortgage by less than 10%?  the answer to that is no.    

rglondon

Definitely try. At most it will take you 30-40 minutes of your time over the lifetime of the complaint. There's zero cost for you. Don't ask don't get.

Jam1q1

Thank you for all of these responses, very helpful.