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Advice Please - Offer to settle early repayment issue


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Hello all


I am after some advise please... I recently moved home and increased my mortgage by £100k. Following discussions with a number of Northern Rock staff I chose to pay an Early Redemption Fee in the knowledge that I would recieve 50% of it back. Following completion NR then dug their heals in and stated that I wasn't entitled to any refund.


Below is a copy of their final letter which highlights all of the mistakes at their side (There may be some typo's as I have retyped their letter to post here)


Given that they are only offering to refund £1,700 - I am willing to risk this in order to recover full or 50% ... what should my next course of action be?


I am minded to issue them a letter rejecting their offer, and giving them a number of options a) refund the Early Repayment Charge in full; b) use the funds from the new mortgage to bring the original mortgage down to its minimum level (I believe it is £100, but I need to check this) and port this over, thus incurring no Early Repayment Charge; or c) raise the issue with the FSA and Small Claims court (what are the implications of claiming £7,500 at small claims - can I do this, and is it better to notify the FSA first or just take the leap and go to court?)


In addition to c) - I am also minded to notify the press and watchdog, as my wife is 7 months pregnant and suffering with Placenta previa, so the added stress associated with this issue isn't helping - would this prejudice any court case, would it be useful as a negotiation lever, or am I better off just avoiding the press?)


Thank you in advance for your assistance


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.

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Hi Macdory,


Welcome to the site. I've moved your post to the mortgage forum so that you can get some specialist help from other mortgage claimers.


We have had a couple of defeats on ERC claims recently but your claim is different as Northern Rock have admittedly mislead you into believing you would only pay half.


Even so as your claim is over 5K this brings it outside the realm of the small claims court and puts you at risk of paying costs should you lose. These costs can be significant the three claims which lost had to pay costs ranging between 4.5-7K.


The safest route therefore is likely to be the FOS. There is no charge for bringing a complaint and if the result is not as you wish you can still claim through the courts.





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Hi Mac


I would find it highly uinlikely that the claim could be reduced at this point. A tactic that the defendant would use (and i have seen this personally) would be they would say at allocation stage that the amount to be claimed is in fact £7500, even though you have said yu will only claim £4999. Also as it will almost certainly go to allocation there is a chance even with a smaller amount that the judge would still put it on fast track. This will be because the defendant will say there are complex issues to be argued.


Before making your decision, it might be best to have a look at CPR 26.8

PART 26*-- CASE MANAGEMENT*--- PRELIMINARY STAGE which will tell you exactly what they Judge will consider when deciding on track. If i was you (and i have a mortgage claim ongoing at minute, for charges not ERC it has to be said) i would take the FOS route....this will give you time for other work to be completed on ERCs and hopefully a few more cases will have been won.


Hope this helps

All advice is based on my experiences. I am NOT qualified and as such cannot be held responsible for any mistakes. If in doubt...get professional help.

If you like what i have said then make me a star!!

Some helpful links

I have been successful in many cases..here are links to some

Housing Act and deposits: http://www.consumeractiongroup.co.uk/forum/showthread.php?266260-Deposit-being-withheld.-Please-advise&highlight=

Against Natwest: http://www.consumeractiongroup.co.uk/forum/showthread.php?278646-N-west-v-Mrsfoot-s-Son.-***WON_ALL-CHARGES-REFUNDED***&highlight=

Against Swift Advances: http://www.consumeractiongroup.co.uk/forum/showthread.php?46576-Me-V-Swift&highlight=

Against B&Q: http://www.consumeractiongroup.co.uk/forum/showthread.php?172878-Me-vs-B-amp-Q&highlight=

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Personally I would take this to the Financial Ombudsman Service Financial Ombudsman Service

All advice is offered in good faith based on my own research and understanding of the laws involved, however I'm not a lawyer!


Please dont rely on annoymous advice posted on a public forum without checking it out for yourself first!

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Thank you for your replies ... I have spoken to the FOS today who gave me some comfort. They said that if the bank has already proposed an offer it is very rare for them to recommend a settlement which is less than that which has been proposed - it all depends on the circumstances and the detail of the individual case.


The only thing I appear to have to lose here is time, as they stated that they aim to reach a resolution within 6 months, but this obviously depends on the complexity of the case.


Given the above, and the fact that they have only offered me £1700 I have downloaded the FOS complaints document and I will pull together all of the relevant info I have and send it to them. I am also going to write to Northern Rock rejecting their offer and notifying them of the FOS involvement.


Any tips on what I should send to the FOS ... would a summary be useful, indexed docuements, or just put everything in an envelope and let them sort it out?


I'll keep updating this page as things progress - hopefully helping someone else in the same or similar situation ...

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Do a summary and indexed documents!


Make it as easy as possible for FOS to see whats happened, otherwise its likely the bored, underpaid employee who opens your envelope of documents will think 'No idea whats happened here, bin it is then'


Best thing about FOS is that their decision would be binding on Northern Rock, but doen not limit your other options in any way.

All advice is offered in good faith based on my own research and understanding of the laws involved, however I'm not a lawyer!


Please dont rely on annoymous advice posted on a public forum without checking it out for yourself first!

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  • 4 weeks later...

I have rejected Northern Rocks offer of 25% of the charges and i'm just in the process of pulling together the documents for the FOS to carry out their investigation.


Note: I initially chose to port my mortgage to avoid the ERC, and then I contacted them prior to my house move to get details of moving to a new product, where I was told at every turn that I would get 50% of the ERC refunded because I was staying with them, and only after completion did they tell me that I would recieve no refund.


After reading in the forums I also feel that the amount of the ERC does not represent a genuine pre-estimate of loss, and this can clearly be demonstrated when I first chose to port my previous mortgage and they altered the ERC to take into account the additional £114k I added to the mortgage. So it moved from being a £7500 ERC to £11000 even though there was only 2 months left to run until I reverted to 2 years of their standard variable rate. (The mortgage was originally for 3 years at a fixed rate, and 2 further years at SVR).


Would you advise raising this in the FOS papers - or keep focussed on the mis-selling angle?


Have there been other cases of mis-selling similar to mine?

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Raise it in the FOS. It will be interesting to see whether they view ERCs as a charge for breach of contract or a charge for exercising a right. The OFT was of the view that ERCs were for breach of contract although the three cases lost in court held otherwise.

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