Avoiding mortgage Early Repayment Charge

[Mumof3confused]

In the process of selling house as part of divorce. We will have 2 months worth of fixed rate left and the penalty for paying off mortgage early is £9k

The actual interest due in those two months is £1k or so. We can’t remortgage/move mortgage to one of us for various reasons but I have tried that.

Has anyone successfully managed to reduce their ERC or is that a total no-go?

The mortgage is with Santander if that makes any difference.

Santander don’t tier the ERC like other lenders do.

Please see my subsequent response. Lesson learned.

Because it's 2 months & I'm sure they didn't intend to get a divorce & need to sell etc when they fixed their mortgage. £9000 is a fuckton of money to pay your mortgage back 2 months EARLY.

@Mumof3confused

Are you sure the amount is correct? I'm too hot to work it out, but most fixes are very low % in the last period, so have you got an absolutely enormous amount in mortgage or has the calculation been done incorrectly?

There must be a way around this. £1000 per week is utterly ridiculous to pay it back early.

Agree with take it to the ombudsman. The way to do this is to make a formal complaint and take it through then ask formal complaint proces and then if they don’t agree to waive it go the ombudsman then. Give the ombudsman a call now just to get their initial advice and get it on the radar. There are really long delays but I suspect you’ve got quite a good chance.

There is a legal issue that it’s not a proportionate estimate of their loss because you’ve broken the contract earlier (as someone said above) and then the ombudsman applies a broader test of is it fair and reasonable. I can’t see that it is in your case.

Santander do let you out 6 months early in some circumstances so I would read your contract thoroughly (if you don’t know this already).

@Starseeking

good luck!!! I hope they do that for you!!

Ouch!

I thought the slow decrease on a 5 year with nationwide was bad enough!!, but no decrease is brutal.

I would double check their clauses within the last few months of your fixed deal.
I work for Barclays and in the last 3 months of your fixed rate, you can overpay upto 90% of your balance and in the last month, redeem in full with no penalties.
It's not widely advertised so best checking with Santander's mortgage servicing team.

Apologies - I missed your subsequent post.

So unfair, I have found Santander the worst mortgage company I've dealt with, so good luck, but I hope you get some compromise from them.

@PicaK who is that with? Santander as well??

We looked into paying off the mortgage early.

I did look to see if we could leave a nominal amount in the account, and have a very cheap mortgage, but we weren’t allowed to, and could only pay a certain amount as a lump sum.

Wow I didn't know this about santander. Will make sure I avoid them when I remortgage.

Some bad advice on here re FOS. They don’t hold ERCs as unfair if they were clearly disclosed etc - only times they will, is if they deem you’re unfairly trapped in the mortgage (eg can’t move because of age and bank has erred in that decision). They won’t uphold just because you want to redeem the mortgage earlier, no matter how reasonable OPs case sounds on paper (if I’m wrong, please link the actual decision , they’re all published on their site).

And their queues are nuts at the moment so you won’t get a decision fast enough anyway (Santander will push for an actual Ombudsman decision, they won’t accept first stage Investigator decision if goes in OPs favour as they know the above). It may seem high but the ERCs are calculated based on the cost to the bank when it bought the funds to fix the low rate. ERCs suck but without them, wouldn’t get the low rate in first place!

Hmmmm. I’m not persuaded on the ombudsman front. My personal view is that it a clearly from a legal perspective not a genuine estimate of loss. I’d say it’s worth at least pushing it to ombudsman decision

The issue is what loss the bank suffers now because the op terminates two month earlier - which would no way be £9kive just look at the Dow website - there’s a page on erc that is worth a look - good luck!

Honestly, read all the previously published decisions by omndudsmen on the accepted legality and reasonableness of ERCs (bar v occasional circumstances as I said). They aren’t like bank charges and not treated as such. They aren’t considered ‘unfair’ even if they’re not tiered. As said it’s about the forward rates purchased to ‘fund’ the low rates during the ERC period.

I'll come back and update the thread with the outcome.

To be honest, I'm looking at that money as lost, and a bonus if I get it back. The annoying thing is I was planning to spend it on a new bathroom with the house that got away, and now this new house is smaller, needs a new bathroom and I have no money left for it!

We went to the ombudsman over no reduction in ERC (I.e. charge at 1yr same as 4yrs) and lost. Can’t you just wait 2 months?

You'd also have to raise it as a complaint to Santander first before taking it to FOS, last I knew complaints are allowed to take up to 8 weeks for a resolution and only once you've got your resolution if you are still unhappy you can take it to FOS. By which point your mortgage rate has run its course anyway!

I was in a very similar position recently and I took out a new smaller mortgage with the same building society, as there was less than 3 months left, the early redemption fee was waived. Check if your mortgage company does the same.

I'm not sure if you have the same product from Santander OP, but you'll need to refer back to your mortgage offer together with the terms and conditions. I've dug my old Santander details out and screenshot these. Despite what it says, I'm still calling that number once I complete! You may as well give it a go, and talk through options.

Good luck!

You're mixing up the legal tests.

"Genuine pre estimate of loss" is the old test for it a sum being claimed upon breach of contract is a penalty (and therefore unenforceable) or not.

An early termination charge for existing a contract early (which is what we have here) isn't a sum that is payable upon breach, it's just part of the pricing formula, so the penalty test is irrelevant.

Consumer law is relevant here, but the bank charges case has already clarified that a clear and upfront fee mechanism is not unfair to consumers.

Please look into and quote the consumer duty when you contact Santander