to challenge the bank on £18k mortgage redemption fee?

[lindylayton]

I know mortgage redemption fees are part of the contract we signed and usually not waived. In this scenario I wonder if I have a small chance of getting anything back because -

a) we signed a 2 year deal, and are redeeming only 6 weeks before the 2 year deal is up.

b) we are forced to redeem 6 weeks before 2 year deal is up because the buyer of our house needs to avoid the new stamp duty increase coming in on 1st April. Our exit date for the mortgage is 31st March !!!

Please share your thoughts and advice, thank you!

Bridging finance wouldn't work anyway - the sale needs to complete before 31st March for the buyers to avoid extra stamp duty and the bank will have a charge on the land registry documents and won't allow the sale to complete until they have their money.

A bridging loan is needed if you aren't getting the money soon enough - this is different, you are getting the money too soon in a sense. They are expensive because for a short time you technically owe the bank for 2 mortgages and are massively exceeding the typical income multiple affordability criteria. You don't want to own both houses at the same time you want to get rid of a house sooner than would be financially simpler.

I'm wondering if the bank might accept the money on or around 15th Feb (whatever the actual completion date is) and agree to release the property for sale and remove the charge from the deeds but not actually credit the funds to your mortgage account for 6 weeks. You would continue to pay interest during those 6 weeks so would lose a few hundred but this might be acceptable?

Could you delay your own purchase for 6 weeks and stay in rented accommodation (air b&b perhaps) for 6 weeks?

I wouldn't be taking an 18k hit myself. You're doing them a favour, they can incur the costs! Saves them 18k if they pay your redemption fee. They're not going to stand much chance of getting any other property before April 1st.

I'm on the other side of something like this. Buying a house with DP but keeping my house to rent. We insisted on a completion date before 31st March to avoid an extra 16k stamp (on top of 18k already) on our purchase. However, if our insistence on completing by this date resulted in an early redemption charge for someone else I would absolutely expect to be asked to front that cost or at least half of it.
Definitely negotiate hard with your buyers, there's no way you should have to stomach this fee. The alternative for them is much more expensive - paying your 18k still saves them 18k!

You need to look into the Unfair Terms and Conditions Regulations. The redemption penalty needs to be proportionate to the bank's loss if you redeem early, which it is unlikely to be in your case.

Try asking here or on the Consumer Action Group, or the Financial Ombudsman.

If the above looks relevant, could you try offering your bank a comparitively nominal sum, eg 10% of the fee?

Agree that you shouldn't take an £18k hit to save your buyer £36k but you also need to consider the risks of losing the sale and having to drop the price for future sales or risk not finding another buyer. At the type of prices you are talking about, you could easily lose that £18k and more if you sell to another buyer at the lower price than the one currently agreed.

So long as the early repayment charges have been correctly applied according to the contract, and it's satisfied you were made aware of the contract terms prior to entering in to it, then FOS won't uphold your complaint. They don't consider ERCs to be illegal or unenforceable as ERCs are not a penalty for breach of contract. They're a term if the contract. Some lenders do apply their ERCS on a sliding scale, some don't again, depends on the contract you agreed to enter into. ERCs are payable because the bank lent to you at reduced rates for an agreed period, having borrowed that money themselves. If they get repaid early, they lose out - hence the ERC clause in virtually every single fixed rate mortgage for the redemption period