27 March 2007
I refer to your letter 14 March 2007. In line with the Northern Rock’s Internal Complaint Procedure, I have reviewed your complaint as Final Arbiter for the Bank. All the information we hold has been looked at as well as any correspondence you have sent us. This letter is the Bank’s Final Response to your complaint.
I understand that you have complained because you believe that we should refund the Early Repayment Charge (ERC) that we charged you when you redeemed your loan in February 2007. You say that we told you and your solicitor on several occasions that you would get a refund of the ERC because you were taking out another mortgage with Northern Rock. The basis of your belief that you would recieve a refund of half of the ERC paid is the original sales call you had with Kelly Armstrong and the later sales call with Andrew Walker.
I will address the points in the order they appear in your letter of 26 February 2007.
1) I have listened to the sales call you had with Kelly Armstrong on 21 November 2006 and i enclose a copy of this for your records. During this sales call, Kelly tells you that you could potentially get a refund of up to 50% of any ERC if you do not port your existing product. As she was unable to access the original Offer of Loan from 25 February 2004, and you say that you do not have a copy available, she could not at that point confirm what, if any ERC refund you would get.
You decided at that point to port your existing product so you did not have to pay any ERC. On 21 Novemebr 2006 we sent you a Key Facts Illustration and on 4 December 2006, we sent you an Offer of Loan. This Offer of Loan contains a mistake in stating that if you did not piort the loan to a further different property, you would recieve a 50% ERC refund. [Macdory Note: this Offer of Loan was signed and at no point until this letter arrived has anyone ever said it contained a mistake]
2) You later decided to opt for a fixed rate, as you wanted the peace of mind that taking a fixed rate loan would give you. You spoke with Andrew Walker on 22 January 2007. We do not record all
telephone calls
made and I am unable to listen to what Andrew told you about the ERC. [Macroy Note: This is very convenient for Northern Rock, as I actually had 4 conversations with Andrew over a 2 week period, as it took 3 Offers of Loan to be sent before he managed to capture all of the correct details (I have my handwritten notes against each date detailing what was discussed, which includes a breakdown of the costs I would have to pay – and during each of these calls I confirmed that 50% of the ERC would be refunded to me, which formed the basis of my judgement to pay 50% ERC and this would be recovered over the next 5 years of Fixed Rate.]
3&4) Your solicitor contacted us on 15 February and asked what they would need to do to redeem the loan without the ERC. The caller from the solicitor’s office seemed a little unsure of the exact circumstances and suggested that you were porting your original mortgage. Linzi Hawthorn then checked and confirmed to the caller that you were not entitled to a refund of the ERC. The caller then says that she will call you. [Macroy Note: At no point have Northern Rock contacted me to tell me that I would not recieve 50% of the ERC as a refund – but they obviously have a record on the system that there is an issue]
A short while later, you called us and spoke with Vivien Oliver. During this call Vivian did not check the exact circumstances and told you that as a returning home mover you were entitled to a refund of 50%. She tells you that she will set up a task to get a redemption statement issued showing 50% of the ERC faxed to your solicitor but this was not done. I understand that you were relieved as your solicitor had told you that we would not make any refunds at all. I apologise that Vivien gave you wrong information.
Your solicitor contacted us on 19 February 2007 and told us you needed the ERC refund to pay the stamp duty on your house purchase. When he was talking with Malcolm Young, the solicitor implied that you were porting and therefore would recieve £7,500 and Malcolm assumed this to be the case. I am sorry that Malcolm did not check the facts and that this raised your expectations. [Macroy Note: Not checking facts but making statements seems to be endemic ...]
Following this conversation Bradley West wrote to you confirming that under the
terms and conditions of your previous product, you are not entitled to any ERC refund. [Macroy Note: he actually sent a letter to me on the 20 February 2007, which arrived on the 23 February 2007 – even though completion was on the 19 February 2007]
5&6) You contacted us after recieving Bradley West’s letter of 20 February 2007. After Lisa Payne told you that the letter was correct, you told us that you had an offer of loan that showed that you were entitled to a 50% refund. I believe this was the “porting” offer issued on 4 December 2006 abd as such the
terms and conditions of this loan do not apply. When you spoke with Bradley West, he suggested that we might waive 25% of the ERC but that he would need to refer your complaint to Customer Support.
You have told us that you believe the phrase “any new mortgage or unsecured loan application will be subject to the lending policy at the time of application” showing on the Offer of Loan from 2004, means that you would recieve a refund of 50% of the ERC regardless of what the original loan detailed. You say that both Kelly and Andrew confirmed this. Lending Policy covers such aspects of an application such as source of income and property type ad and changes to it does not alter the terms of a legally binding contract.
You say that you would not have considered repaying the ERC plus the £895 Product Fee as the new product will not deliver this level of savings over the 5-year fixed term. Had you remained on your previous product, you would have been tied into our Standard Variable Rate (currently 7.09%) for another 48 months. I believe that by taking this fixed rate, you will not be financially disadvantaged. [Macdory Note: My original mortage was for circa £100k, and having to pay £7,500 plus £895 to move to a new 5-year Fixed mortage is most definately not financially viable. The only reason why it will probably break even is because I added an additional £100K to my mortage which is benefitting from the 5-year Fixed Rate. The additional £100k should not be included in any calculation of viability as this did not form the basis of the £7500 calculation]
You have stated that you believe the ERC is an unfair penalty rather than a genuine pre-estimate of loss. The Early repayment Charge is a prenotified and agreed provision of the mortgage contract which allows you, the customer, to exit your obligations to which you are bound upon payment of a known sum. The charrge is valid up to a specified date and is non-negotiable. This charge was also clearly set out in your Offer of Loan dated 25 February 2004. [Macdory Note: I asked them to provide me with a breakdown of the ERC to demonstrate that it was a genuine pre-estimate of loss. They have not done this and as you can see they have not addressed this issue. I have also referred this clause to the FSA Unfair Conditions Unit for their assessment]
While I agree that we have told you on occassion that you would recieve a refund of the ERC and I apologse for this, i must point out that the
terms and conditions of the product are clearly shown in your original Offer of Loan. I am aware that you completed on your new home within weeks of the qualifying period for the refund of the ERC and therefore propose that we refund 25% of the ERC you have paid.
This offer is made without an admission express or implied that the early repayment charge is unlawful, but in recognition that you are a valued customer and as a gesture of our goodwill which I hope will restore your confidence in Northern Rock. I believe this to be fair and reasonable in the circumstances. [Macdory Note: How can this be fair in the circumstances when Northern Rock themselves have highlighted that on no occassion prior to completion did any of their employees identify an issue with the ERC refund, and in every case they all confirmed that I would recieve a refund]
In line with the terms and conditions of the previous product, we should have charged you 7.5% of the amount repaid. As we chaged you 7.5% of the original amount borrowed, we have overcharged you by £481.79. I have arranged for us to send this refund to your bank and this should be showing in your account within 4 days of the date of this letter. [Macdory Note: This has been recieved]
Consequently, the 25% ERC refund that I am offering is £1,754.55. If you would like to accept this please sign and return the enclosed acceptance declaration within 14 days. I enclose an envelope.
This decision is final and our review of your complaint has been conducted in line with Financial Services Authority guidelines. If you decide not to resolve matters at this stage, you now have the right to refer your complaint to the Financial Services Ombudsman Service (
fos). You have 6 months from the date of this letter to do so. Before deciding how to progress matters, you may find it helpful to either contact the FOS.
Advice Please - Offer to settle early repayment issue
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