Mortgage redemption is a punitive. Any advice?

conman666

OK, so we finish a 5 year fixed rate with Scottish Widows next May. My wife (post Brexit) has taken a job abroad so we're selling our house and it will be sold 8 months before the end of the 5 year period.

The bank demand five thousand pounds (£5000) for us to leave. The full fixed interest up to May would only be £2000 (and in reality they would get less because it's offset with our savings in). I offered to pay the £2000 in cash and leave early but they said no.

I understand we've signed a contract but is this fair and reasonable? Any advice?

dimbo61

Can you delay the sale till May 2023?
Could you rent it out for 6/12 months after getting consent to let and then sell after the ERC has finished !

Edi81

The ERC is linked to the funding that SWB (Lloyds Bank) has taken to lend to you. 

Kingstreet one of the fab brokers on here posted a reply on this topic recently. 

https://forums.moneysavingexpert.com/discussion/comment/79446130#Comment_79446130

dunstonh

I understand we've signed a contract but is this fair and reasonable?

Absolutely is fair and reasonable.

Any advice?

pay it or wait until its gone.  It really is that simple a choice.

conman666

@dunstonh Would a million pounds be fair and reasonable? What is the limit?

conman666

Edi81 said:

The ERC is linked to the funding that SWB (Lloyds Bank) has taken to lend to you. 

Kingstreet one of the fab brokers on here posted a reply on this topic recently. 

https://forums.moneysavingexpert.com/discussion/comment/79446130#Comment_79446130

I don't fully understand. Is it saying that they would expect MORE income than the whole 5 years interest (that I offered to pay)? 

noitsnotme

conman666 said:

@dunstonh Would a million pounds be fair and reasonable? What is the limit?

What a strange statement!  Of course a million pounds on a mortgage of a few hundred thousand pounds would not be reasonable but then it’s never going to be that much is it.  The limit is always in the low single figure percentage and is known to you at the point you agree to the contract.

conman666

noitsnotme said:

conman666 said:

@dunstonh Would a million pounds be fair and reasonable? What is the limit?

What a strange statement!  Of course a million pounds on a mortgage of a few hundred thousand pounds would not be reasonable but then it’s never going to be that much is it.  The limit is always in the low single figure percentage and is known to you at the point you agree to the contract.

It is a way to test the previous statement (called absurdis in extremis). If double the full interest they would receive is reasonable but a million pounds is 'strange', it implies a point a limit between the two. In this case, it is like agreeing to buy a mars bar next year for a pound but saying now, I don't want the Mars bar but WLL give you the pound right now. And them saying 'No, we want 2 pounds'.

noitsnotme

conman666 said:

noitsnotme said:

conman666 said:

@dunstonh Would a million pounds be fair and reasonable? What is the limit?

What a strange statement!  Of course a million pounds on a mortgage of a few hundred thousand pounds would not be reasonable but then it’s never going to be that much is it.  The limit is always in the low single figure percentage and is known to you at the point you agree to the contract.

It is a way to test the previous statement (called absurdis in extremis). If double the full interest they would receive is reasonable but a million pounds is 'strange', it implies a point a limit between the two. In this case, it is like agreeing to buy a mars bar next year for a pound but saying now, I don't want the Mars bar but WLL give you the pound right now. And them saying 'No, we want 2 pounds'.

It’s not like that at all.  You didn’t agree to an early redemption fee of let’s say 1.5% and they’re now saying ‘No, we want 3%’.  They’re charging you the fee that you agreed to in the first place.

dunstonh

conman666 said:

@dunstonh Would a million pounds be fair and reasonable? What is the limit?

Yes, it would be fair if the contract terms were relative to the amount being borrowed.   You would have to have a large mortgage to get that amount, but it would still be fair.  There is no limit.

People have tried to get out of ERCs, and they continue to be found reasonable as they reflect the lender's costs.    Deals are financed by investors.  This can be fixed term deposits or the money markets with swaps etc.    The lender has to pay penalties if they cancel those earlier.    Hence why the ERC exists.

conman666

noitsnotme said:

conman666 said:

noitsnotme said:

conman666 said:

@dunstonh Would a million pounds be fair and reasonable? What is the limit?

What a strange statement!  Of course a million pounds on a mortgage of a few hundred thousand pounds would not be reasonable but then it’s never going to be that much is it.  The limit is always in the low single figure percentage and is known to you at the point you agree to the contract.

It is a way to test the previous statement (called absurdis in extremis). If double the full interest they would receive is reasonable but a million pounds is 'strange', it implies a point a limit between the two. In this case, it is like agreeing to buy a mars bar next year for a pound but saying now, I don't want the Mars bar but WLL give you the pound right now. And them saying 'No, we want 2 pounds'.

It’s not like that at all.  You didn’t agree to an early redemption fee of let’s say 1.5% and they’re now saying ‘No, we want 3%’.  They’re charging you the fee that you agreed to in the first place.

Is it a fee? Or is it a punitive fine? I'm saying I would pay THE WHOLE INTEREST all the way up to the end of the fixed period. Plus admin costs. But they want more. Am I missing something here? I'm obviously not an expert on finances. We never in a million years thought we would ever leave the UK so that's why the specific ERC didn't seem relevant at the time.