OFT report 281 MTG FEES

**njtkc** · 29th October 2006 18:10

Modelling redemptions fees and incentives on UK home mortgages etc....
if you go into the office of fair trading site and search oft281.pdf it will come up.
This has been dated on the oft site as 08/06
Has anyone seen or read this report published in Nov 1999.....very detailed and indepth discussion and analysis document 72 pages. It discusses the way money is bought and sold to make profit, it's arguement is very complex and at the end the excel spreadsheet is explained and can be download and used (page 2). I can't download it !

It seems to say that a penalty can be deemed as fair\unfair by the oft depending on the 'answer' after the info is punched into it....the instructions are they're for the cell references seems along with the document info something you can do.

We must have a mathmatical genus on this site somewhere..........help is this any good for those of us claiming our ERC back.

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**GraemeC** · 29th October 2006 19:45

I have a copy of the 1999 report and it shows how to value the incentive given on a mortgage icon

(eg. a fixed rate) using interest icon

rate swap/floor valuation techniques.

The maths is complex, but it can be done (I havent tried - aint got a spare week or so at the moment!)

If the mortgage icon

companies were actually doing this, then they could simply say "Here are the relevent calculations which support our ERC" and none of the people claiming their ERC's back would have a leg to stand on as the charge would be a genuine pre-estimate.

I would have thought asking an innocent sounding question along the lines of "How does your charge compare with the OFT's paper on modelling redemption fees?" would cause no end of difficulties, as I'm sure the banks woulnt want to come right out with it and say they dont actually calculate redemption fees in this way!

The ERC's people are being charged are simply a profit generating scheme (I work with a number of large financial institutions inc. mortgage lenders - they are well aware their ERC's are a profit generating scheme and not a genuine estimate of their losses).

My girlfriend paid approx £2.5k for redeeming a discounted variable rate mortgage early (yes, we're sueing them)

Bearing in mind this was a discounted variable rate mortgage, its VERY straightforward to work out the interest she saved compared to someone on a standard variable rate mortgage - about £900

So what is the other £1.6k? Profit for the mortgage company, pure and simple. Per all the discussion, its also an unlawful charge which they will be paying back to us soon :grin:

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