mortgage company penalty charges for early redemption

[kingscounsel]

what's the consensus here?

[BankFodder]

The same law applies for the charges they levy for missing a payment date. This is just the same as missed payments on credit card payments. No surpises.

 

As for redemption charges - that may be different.

[kingscounsel]

As for redemption charges - that may be different.

 

I am not sure it is.

 

If Bank X states "If you wish to redeem this mortgage within the first X years, then you shall pay £Y to us" where Y does not represent a genuine pre-estimate of their loss, then they are not IMO entitled to it!

[Russe11]

the bank has already estimated its going to make x amount from you mortage, when they are not going to get the interest they feel they need to profit in another way, thus peanalising the customer.

 

its no different, they are using a penalty clause to make profit and not covering costs, especially as the charge you a fee for setting up a mortage(supposed to be for costs), does it cost 500 to set it up ?

[Russe11]

nothing

[BankFodder]

Yes, I agree with that but is it trying to compell performance of the contract in quite the way that a penalty might be described to be doing.

 

I'm just trying to find another angle.

 

Other aspects of this which spring to my mind are that there are many more mortgage lenders out there than there are banks. Many different mortgage products. One can often agree to pay a certain rate of interest with a redemption charge or a lower rate of interest without such a charge. The different lending companies really can be said to compete much more than to banks for current account holders. This adds up to choice which means that redemption charges clauses might be said to be fair contract terms because the consumer has a real opportunty to opt in or out.

Although this doesn't go to the issue of penalties it does indicate that the whle "climate" or mortgage contracts might in some way be different.

 

It occurs to me that there are also some steep redemption charges for some personal loans as well. This gets interesting but rather too busy as well.

[BankFodder]

Well don't forget that bank penalty charges are in the contract as well. It is the level of charge which is th eproblem. Not the existence of of a penalty clause.

[BankFodder]

I think that it would be very possible for the lenders to say that they offered other products without a redemption penalty and so a borrower who chooses to buy a product with lower interest rates or cashback etc had paid a promise to pay a fee on early redemption as part of the price of that otherwise more advantageous product.

 

I think that this would be an argument which would be very acceptable to a judge.

 

The difference between lender redemption penalties and bank penalty charges is that the bank doesn't have a range of products which allows the customer to select a current account product which is less advantageous in other ways but which is not associated with excessive penalties.

 

Personally I don't think that redemption penalties are recoverable and this would be the reason which I would give. I think that a lawyer who couldn't construct a convincing legal argument based upon this principle should go back and retake his "O" levels.

[Robertxc]

I think this issue might be quite simple, but I must first confess that I don't know a great deal about it. As I understand it, the early redemption penalty is there to protect the lender in case interest rates go up (or is it down?) and you bail out early. Apparently they make some sort of investment to cover your mortgage in case interest rates move in an unfavourable way for them.

 

Essentially, my take on this is that if interest rates have stayed the same, or gone down during the redemption period then the lender is getting a better rate out of you than the 'norm' - in which case they have no basis for charging a penalty if you leave early (because they haven't suffered a loss). However, if interest rates had gone up and they were getting a lesser rate than the 'norm', then I think they have a basis for charging you, because by leaving early you are denying them the opportunity to recoup their 'loss'.

 

This is obviously a back-of-a-fag-packet hypothesis, so feel free to shoot it down!

[gothicf0rm]

all of it though depends on the level of the redemption charges, charges are legal as long as they arent punitive. you need to consider the scale of the charges compared to the possible loss of the lender.

[BankFodder]

Not quite correct. If the charges exist merely to compell performance then they are probably penalties in which case they may not be more than the losses suffered.

If the charges really do represent the price of a service then they can be anything - provided they were agreed in advance. Add to that a sense that the customer had the freedom to choose alternative products and you have a whole different ball game.

[gothicf0rm]

it depends on the performance they are trying to compell. eg my company contract with client has late payment charges on it. these exist to compell the client to fulfill their legal obligations in paying on time.

[Seminole]

From the GE Money website- obviously they are getting a bit worried about the terminology and its implications:

 

Early repayment charge

 

When a loan or mortgage is repaid, or partly repaid, earlier than expected (before the end of any fixed, discounted, or capped rate period), many lenders charge a fee to cover the extra administration and some of the lost interest payments. This particularly applies to certain types of mortgages, such as those with fixed, discounted or capped interest rates and to cashback mortgages.

 

The early repayment charge was sometimes referred to as a redemption fee or redemption penalty in the past.

[GraemeC]

My girlfriend has recently paid an ERC on redeeming her mortgage after she swapped to a discounted rate from std variable.

 

I will be pursuing this, initially from a mis-selling angle as she changed her mortgage after speaking with someone at Standard Life Bank (a 3 year stepped discount product was clearly not suitable from someone who was almost certain to move within 3 years)

 

If this does not suceed, I will pursue it under the UTCC regs (though the common law option I have just read about seems better) as the interest she 'avoided' by stitching to the discounted rate was considerably less than the redemption penalty (ie. way in excess of actual costs/losses to the bank).

 

I believe this has a reasonable chance of success - found this on the Office of Fair trading website yesterday -

 

A term in a mortgage agreement which requires the borrower to pay more for breaching the contract terms than actual costs and losses caused to the lender by the breach (or a genuine pre-estimate of that) is likely to be regarded as an unfair penalty and to be unenforceable both at common law and (in a consumer mortgage) under the Unfair Terms in Consumer Contracts Regulations. A redemption charge may be regarded as a penalty even if it is expressd as the price for exercising a right rather than a consequence of breaking the agreement

 

Anyone actually got a response from their mortgage provider yet?

[Robertxc]

I must say, I'm SERIOUSLY tempted to give this a go. I'm still smarting from the £4k GMAC took off me a couple of years ago. Reading the OFT quote gives me a better sense of clarity are to the legal position. I don't feel that I need a legally watertight case, just enough of an argument to cause them to decide that its not worth defending.

[Vital Spark]

Does the unlawfullness of a penalty charge also apply to companies which charge £10 for late payment of bills such as do Telewest?

[Robertxc]

I don't see why not. If your lateness ahsn't cost them £10, then it is probably unlawful.

[Vital Spark]

Hmmm, thank you, Robertxc. I might try this. My bank made so many errors with my DDs that I took the ones with which they appear to have difficulty out of their arena to pay them directly. I incurred £10 charges for late payment of these bills.

 

I might just try to reclaim then without the courts involvement: couldn't handle more of that as I'm struggling to handle startign a claim against my bank.

 

Dyslexia can be a most debilitating feature. Mine is worse numerically although my unconventional spellign may deny that, and workign in an area where numbers are called into question does not inspire any confidence in my ability to take on competition when the opponent is such as a bank which is well used to dealing with numbers.

[blackrain]

I have received a 2 page 'go away' letter from Birm Midshires today. The basis is that I was allowed to redeem my mortgage early therefore there was no 'breach of contract'.

 

If no breach of contract then they purely exercised their right to charge me six months interest as I repaid in part or whole the amount borrowed. Basically if I had decided to pay a £1000 back early they would have charged me £2000+ for the privilege.

 

I can't see how that is right/fair/lawful....

 

They have also refused to reveal how the costs are broken down as they are 'Commercially Sensitive Material'. What would be the chances of getting that revealed in court do you reckon?

 

I saw this earlier in this post: "A term in a mortgage agreement which requires the borrower to pay more for breaching the contract terms than actual costs and losses caused to the lender by the breach (or a genuine pre-estimate of that) is likely to be regarded as an unfair penalty and to be unenforceable both at common law and (in a consumer mortgage) under the Unfair Terms in Consumer Contracts Regulations. A redemption charge may be regarded as a penalty even if it is expressd as the price for exercising a right rather than a consequence of breaking the agreement"

 

As BM's argument is that neither of us breached a contract how would I use this in my argument? Any ideas on this anyone?

[Robertxc]

Check out zootscoot's thread on the subject. She has successfully reclaimed her redemption fees.

[zootscoot]

Hi Blackrain,

 

You might also find some joy in the knowledge that Birmingham Midshires paid back 2 ERCs last week.

 

See Lickthewallfatboy & Thunderpuss threads.

 

You can incorporate the following response to the no breach argument into your LBA:

 

The charge you have levied in the form of an early redemption fee (substitute any other name which your mortgage provider has used) represents a charge in relation to a breach of contract on my/our part in that I/we terminated the mortgage contract before the contractually agreed period of XX years.

 

This term of the contract was clearly stated in the written mortgage offer signed by myself (and XXX?). The terms of which were incorporated by reference into the mortgage deed which was not only signed by us but also witnessed. There is clearly no room for doubt that such a clause existed in the contract. Similarly, there is no question that we in fact redeemed the mortgage on the xx/xx/xxxx as evidenced by our final redemption statement. This date is clearly well before the contractually agreed date of xx/xx/xxxx and thus represents a clear breach of the contract.

 

 

Stick to your guns and it won't be long until you see your money again.

 

Best of luck

 

Zoot

[blackrain]

Cheers!

[Vital Spark]

What are ERCs and LBAs? Anyone, please?

[Robertxc]

Early Redemption Charge

Letter Before Action

[Guest peed orf]

There's a tread in the Questions page called "Abreviations" with a yellow triangle by the side, I've brought it to the top, so it's easier to find. It has mostly used ones in there.