Mortgage ERC horror story

Togneri

Hi all,

Wanted to share my mortgage early redemption charge horror story and get thoughts/advice.  As a summary of the situation:

• We moved our family from Scotland to South England in 2020.  We sold our house with 6 months left on our fixed rate mortgage with Clydesdale bank, on the understanding that when we found another house we could port the mortgage over and avoid the early redemption charge (ERC), which was a hefty £8.5k, or 2% of the outstanding mortgage.
• Part of the move was because there was a buoyant jobs market in London and sure enough I got new work (with a London payrise) pretty quickly.  I spoke to mortgage brokers to understand how much we could borrow from typical high street banks on this income.
• We found a house well within this budget, and started the process to port our mortgage (plus additional lending) with Clydesdale.  Clydesdale declined our mortgage application, and came back stating they wouldn’t lend anything like their peers.  We have subsequently learned that this is because they wouldn’t take my new income into account.
• Now at this point there’s not much I can do.  I can stop the purchase and find another house, but houses are more expensive in the South, and it feels unfair that we should be stuck to borrowing much less than normal because we got unlucky when choosing a lender 18 months ago
• Otherwise we can incur a £8.5k charge and buy the house we want with another high st bank

We opted for the latter, and so bought the house while raising 2 complaints with Clydesdale:

1. I don’t think it’s fair that I should have to pay an ERC when I have done everything reasonable to avoid this.  I could not predict that Clydesdale would offer so much less than their peers (and subsequently that the mortgage port option was of limited value)
2. Notwithstanding (1) - The value of the ERC itself is excessive – Clydesdale stood to earn c£4k in interest payments over the 6 month period, so to charge £8.5k is unfair

Clydesdale, rather understandably, concluded that they were not in the wrong as they had followed all their internal processes properly.  Frustrating but I can understand this.  What I have been more surprised by is that the FOS have also concluded that the above is fair, basically for the same reasons (i.e. the bank has done everything they are meant to do in this situation, they are allowed to apply different criteria etc).

Given the sums involved I am loathe to let this be.  I am particularly annoyed that the FOS conclusion seems very focused on whether the bank did anything wrong, and not whether the end result is fair for all parties concerned.  I totally accept that Clydesdale are allowed to apply their own criteria and decline me, however given I’m the less informed party here (i.e. I couldn’t know that the ‘port’ option was of limited value), it feels very unfair that this can put me in a position where I can either borrow much less than normal or pay £8.5k.

If you’ve got this far – thanks for sticking with me!  I guess I have 2 questions:

 

1. Am I genuinely in the wrong here?
2. Is there anything more I can do?

 

Exodi

Togneri said:

1. Am I genuinely in the wrong here?

You're employing very deliberate language here, the question should be whether we think the lender is in the wrong (as that is what the FOS decided on). Personally, while it is inconvenient to you, I side with Clydesdale and the FOS that the lender is allowed to set their own criteria, and is under no responsibility to keep you informed of this (oftentimes these criteria are commercially sensitive).

This could have been prevented early on by valdiating your assumptions with Clydesdale before becoming invested.

Togneri said:

2. Is there anything more I can do?

You can apply to the High Court for a judicial review to if you believe the Ombudsman's decision to be legally flawed.

Sorry, probably not what you want to hear, but I think it's important to be honest. This is only my opinion.

K_S

@togneri Porting is always subject to criteria and lender policy at a future point in time, so hard to foresee.

When I discuss length of fixed-terms with clients and they express the possibility of a move, I always point this out re: porting as clients are (understandably so) often under the misconception that porting is more straightforward than getting a new mortgage from a new lender.

During the last couple of years, I've had a higher than normal number of home-mover clients who had to pay ERC because their current lender had significantly changed their income criteria during/post covid (eg: only taking 30% of variable income where they used to take 60%, lower LTI caps for self-employed income, etc.) which meant that their borrowing power with that lender had deteriorated.

Togneri

Exodi said:

You're employing very deliberate language here, the question should be whether we think the lender is in the wrong (as that is what the FOS decided on). Personally, while it is inconvenient to you, I side with Clydesdale and the FOS that the lender is allowed to set their own criteria, and is under no responsibility to keep you informed of this (oftentimes these criteria are commercially sensitive).

Thanks for the response - you're right in that this isn't what I want to hear!

I think this is where I'm struggling - I assumed that the FOS would answer the question 'what is the fair result for all parties involved?' whereas they only seem to be answering the question 'have Clydesdale done something wrong?'.

I don't think it's a fair result, but it's not because of specific wrongdoing from Clydesdale, rather it's because the balance of information means I can never know for sure what the lending criteria is, so there's always this risk of being caught out.

K_S said:

During the last couple of years, I've had a higher than normal number of home-mover clients who had to pay ERC because their current lender had significantly changed their income criteria during/post covid (eg: only taking 30% of variable income where they used to take 60%, lower LTI caps for self-employed income, etc.) which meant that their borrowing power with that lender had deteriorated.

Again thank you, very informative.  I'm assuming there's be no recourse in any of these situations (i.e. they've just had to accept it)?

K_S

Togneri said:

K_S said:

During the last couple of years, I've had a higher than normal number of home-mover clients who had to pay ERC because their current lender had significantly changed their income criteria during/post covid (eg: only taking 30% of variable income where they used to take 60%, lower LTI caps for self-employed income, etc.) which meant that their borrowing power with that lender had deteriorated.

Again thank you, very informative.  I'm assuming there's be no recourse in any of these situations (i.e. they've just had to accept it)?

@togneri Lenders change income/affordability/property criteria all the time, it's just that during covid the number and frequency of changes spiked considerably. No recourse for the borrowers.

It's important to remember that a lot of mainstream lenders have a relaxed approach towards like-for-like porting, for example Nationwide has the option to ignore affordability for porting clients who are not looking to borrow more or change term. However, when you need to borrow more, the lender is required to make sure it is affordable and treat it similar to a new application.

Wozza85

I went through something similar with Santander. Signed for 5 years, wanted to increase it for a house move when dream house came up but they refused to offer us the additional based on their calculators but Principality were happy to give us the extra amount BUT we had to pay the 9k ERC fee to get out. 

I assumed we could extend the amount with Santander but wasnt the case and was a lesson learnt, we swallowed it up and went with Principality and missed out on the 9K. 

ACG

The financial ombudsman is there to ensure financial services firms are acting farily. Fairly does not mean giving you what you want, it means have they been clear, are the terms reasonable and so on. 

Obviously you are the less informed party, if I applied for a mortgage with Clydesdale I would be the less informed party as I rarely use them and I have been a broker for 10 years. Their terms and set out on the basis that all of their customers will be the less informed party. 

You did not need to predict what Clydesdale would do, you only had to ask them. They could not predict you were going to start a new job. 

Initially I was thinking you are in the wrong and it is one of those things that you have to take on the chin. However, looking on their website under criteria there is no section on "Employment", I then went to "income" and it says "paid monthly - 1 payslip". Even under packaging requirements it says 1 payslip, although it does also say 2 year employment history is needed. In all honesty, I (as a broker) would have called up to check if that means one month employment in the new job. However, you as the "less informed party" I think it is fairly reasonable that you would assume you only need to have been in the job for a month in order to use your new income.  

I used to do complaints for a bank and I was probably one of the harsher people there but I always tried to think has the customer done what they wanted and trying to pass the buck or have they used common sense and maybe just got it wrong. In all honesty, I think you fall under the former and it is your mistake (sorry, but I am just being honest). But their lack of information on their website could go in your favour. 

Togneri

ACG said:

I used to do complaints for a bank and I was probably one of the harsher people there but I always tried to think has the customer done what they wanted and trying to pass the buck or have they used common sense and maybe just got it wrong.

With the benefit of hindsight I should have asked Clydesdale, before selling our Scottish house, 'what is your criteria for increased lending if I get a new job?'.  To be honest I didn't realise there would be this much disparity between lending criteria for mainstream banks, so this thought never crossed my mind.

I think one of the difficult things here is that I didn't know that the porting option was pretty worthless (assuming we want to increase our borrowing) until I was way too far down the line.  Maybe I'm wrong here (definitely feels like it given the above!) but it feels that having customers bearing this risk isn't in keeping with the general FCA principles around fairness.  I can completely understand the need for ERCs to cover banks when customers chose to pay early/leave the bank, but for it to be some kind of 'basis risk' where customers can get caught out feels unfair?

I know now that when I enter into a fix rate there is a material risk that if we want to buy a bigger house then the specific lender could act differently to the broader market.  I did not understand this risk when I entered into my Clydesdale mortgage a few years ago!

Thrugelmir

Lending criteria can change overnight. It's a commercial decision made at board/risk management level. Mortgage books are run at the macro level. Whereas you are viewing the situation through a personal micro prism.  Simply not enough profit margin to operate in this manner. Lending decisions have always been subject to criteria at the time of application. That's how the world of finance works. Hard but fair to all parties. 

kingstreet

It would help if people didn't think of porting as transferring one mortgage and taking out another if they need to borrow more.

You are applying for a whole new mortgage of the higher total amount and the terms from the current mortgage are transferred to it, if you meet lender criteria and are accepted. Portability has never provided a guarantee of anything.

The other issue is ERCs. Don't assume the lender is collecting and keeping these. More often than not a third party provided a rate swap to fund a fixed rate and the ERC is payable to them right up to the expiry date. All the lender is doing is paying it away in compensation for breaking the agreement.

As for the FOS, most of us think more decisions go the way of the consumer while consumers think the opposite. On balance, that probably means they get things about right. You can read more decisions here;-

https://www.financial-ombudsman.org.uk/decisions-case-studies/ombudsman-decisions

ACG

I think the problem you have is that all of this could have been avoided with a phone call.