Are Mortgage early redemption charges really reasonable?

borgbaiter

hi all

i have an ongoing morgage dispute that meant i had to visit the FOS site today while trying to find my answer i came across these two examples of upheld complaints. both about early redemtion charges. i found these very interesting not much good to me but im sure they will be of interest to some.

this is the link to the page:
http://www.financial-ombudsman.org.uk/publications/ombudsman-news/50/banking-contracts.htm

the two in particular of interest are:

case studies – some common issues in complaints involving banking contracts
50/1
whether firm brought early repayment charge fairly and reasonably to customer’s attention before making mortgage contract
Mr W borrowed money from his bank (firm A) to help buy some properties to rent to students, as part of his business. This was a commercial mortgage, and it was at a fixed rate of interest for the first five years.
Eighteen months after taking out the mortgage, Mr W decided that as interest rates had fallen he would repay it and take out a different mortgage with another bank – firm B.
He was shocked when firm A insisted that he would first have to pay a large early repayment charge. He complained, saying he had known nothing about firm A’s right to make this charge, and that the amount demanded was, in any event, unreasonably large.
Firm A rejected Mr W’s complaint. It told him that the charge had been clearly set out and explained in the mortgage terms and conditions and that it was binding on him as part of the contract. It also said that, before Mr W had agreed to take out the mortgage, a member of its staff had explained the early repayment charge to him.
complaint upheld
The firm’s right to demand an early repayment charge was an onerous term. So Mr W could only be bound by it if the firm had brought it fairly and reasonably to his attention before he entered into the contract.

We examined the mortgage documents. They did state that an early repayment charge was payable if Mr W repaid the loan in the first five years. And they set out how this charge would be calculated. But the firm had not given this information any prominence. It had placed the information in the small print of its mortgage conditions (on page 5, in clause 24). And it had not mentioned it in any of the other mortgage paperwork (for example, in its mortgage offer letter).
Moreover, we were not satisfied that the firm had explained the charge to Mr W in a face-to-face meeting before he took out the mortgage, as it had claimed.
We concluded that the term concerning the early repayment charge was not binding on Mr W. We ordered firm A to allow him to repay his mortgage without incurring the charge. We also awarded Mr W £300 compensation for the distress and inconvenience he had been caused.

......................................

50/2
firm fails to give early repayment charge due prominence in documents issued before making the contract – whether the charge still binding
Mr G’s situation was similar to that of Mr W in the previous case (50/1). But the firm in Mr G’s case accepted that it had failed to give due prominence to the early repayment charge in its mortgage terms and conditions or its mortgage letter.
The firm argued that, despite this, the charge was still binding on Mr G. It said it had explained the charge in a notice it sent him just before he drew down the loan. Unhappy with the firm’s stance, Mr G came to us.
complaint upheld
As the firm admitted, it had not referred at all prominently to the early repayment charge in the original paperwork that was present when the contract was made. But the contract had been made at the point when Mr G accepted the firm’s mortgage offer by signing and returning the offer letter.
The firm had not drawn Mr G’s attention to the early repayment charge before this point. It was several days after he had signed and returned the offer letter that the firm sent him the notice about the charge. So Mr G was not bound by the term relating to the charge. We upheld Mr G’s complaint and told the firm it should not apply the charge when he repaid his mortgage.


Any thoughts on this anyone ?


Borgbaiter

homer_j_3

You haven't really gone into your actual dispute.

If your mortgage is a regulated residential mortgage then I fail to see where these examples would be helpful to your specific circumstances. That assumes that you took this mortgage out after 31/10/2004 and is a residential mortgage.

If it was after this date then you would have been issued an illustration where the charges would have had prominence and would have been clearly stated.

dunstonh

If you look at the first complaint, you will see that the ERC was not documented in the offer letter. That is the contact being signed so not putting it in there was quite frankly stupid on the part of the lender. However, most lenders are going to have it in the offer letter.

As homer says, since the KFI document started being issued, you would have a hard job proving you didnt have enough information. With that and the offer letter you are on an uphill struggle.

borgbaiter

hi

im not claiming on this i just found it interesting and may be applicable to some people on this site.

It is made clear in both cases that mearly being in a contract doesnt make it fair it has to be given prominence and may also need to be conducted face to face. I note from the chelsea mortgage adverts their mortgages can still be conducted by letter and phone using their solicitors. I know from when i was with the chelsea, the penal aspect of their cashback was not given prominence and not mentioned verbally. given the frequency of these adds on sky id be very suprised to have been their only customer.

The FOS uses these illistrations to indicated examples of their approach. Fair and onerous seem to be favorite words in these examples.


Borgbaiter

dunstonh

It is made clear in both cases that mearly being in a contract doesnt make it fair it has to be given prominence

The response makes it clear that it wasnt in the contract letter. The contract/offer letter is the key document. Not the T&Cs which are not signed. Had it been in the offer letter it would have been rejected.

and may also need to be conducted face to face.

That only applies on face to face advice cases. On postal/direct applications then the lender would just have to show it in the KFI and offer/contract letter. When you go direct you waive some of the FOS protection as you are bypassing an adviser. That doesnt mean the lender should not disclose the info but they only have to put it in writing in a fair manner.

Some lenders have moved to non-advice applications already to reduce their liability for future complaints.

nezamr

I repaid my mortgage 1 week before the early repayment charge period was over thinking the charge was charged on a daily basis but when i got my statement of sale, i was charged the whole repayment charge of 5% of the whole mortgage!!

This was last year now!

Do you think i might have a case against Birmingham Midshires? It was almost £5,000!!

Dan_Collins_2

I would have though these are pre FSA?? The Offers or most offers are laid out as per FSA rules so how can they be unfair?

More ambulance chasers!

MarkyMarkD

nezamr No, you don't have the slightest case against Birmingham Midshires. Your redemption statement (presumably) showed the ERC.

You DO have a case against your financial adviser - if you had one - or your solicitor - if you used one. Both of these professionals should have checked the details of the ERC and pointed out that it was about to expire.

But equally well, you are culpable for not reading your redemption statement. I can't imagine how you would have thought it declined on a daily basis when your statement will have said "ERC due £5k" unless you mis-stated your intended redemption date to get the redemption quote showing no ERC.


Regarding the general issue, I think there is zero chance of any cases post-mortgage regulation as all ERCs are stated in an FSA approved, consistent, manner. The only chance of success would be the obvious situation where the KFI was wrong - in which case, the lender would struggle to enforce it.

Gorgeous_George

Sounds like another scam for people NOT to take responsibility for their actions.


GG