Mortgage ERC

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    Mortgage ERC

    Good evening,

    I would be interested if anyone had any views on mortgage early repayment charges. Unfortunately my circumstances have changed significantly over the last 8 months and I am in a situation where I am forced to sell my buy to let property, mainly due to a change in my financial situation and family circumstances.

    As it stands the early repayment fee is £6,000, a fee that would significantly dent my remaining equity. I appreciate a lot of people will state it was my fault for entering this contract in the first place, which I accept, although the circumstances that I find myself in now were completely unforseable at the time.

    Is anyone aware of any way to reduce or negotiate a more affordable fee? Unfortunately the contract terms are fairly substantial, which I was aware of at the time of purchase. The lender has indicated the fees stand.

    One possible idea was to inform the lender that I am now living in the property which of course is a breach of contract. This would force a recall on the mortgage, or at least a threat of a recall on the mortgage. If this happens then I could pay the remaining balance. The lender has no T&C's in terms of recalling a mortgage so under these circumstances the ERC could not be enforced if the lender decided the mortgage is to be recalled.

    If a buy to let is lived in by the Landlord the lender has to a proceed down the court route to get the person evicted. However if the landlord offered to pay the balance in full then the lenders argument in court becomes void as fees are being repaid. I also believe the lender can claim damages, however only in direct relation to the actual breach of contract. As payments are not in default their actual loss is zero, so recovering costs would be almost pointless.

    Has anyone experienced a mortgage recall, or aware of issues imposed by this course of action?

    If anyone could offer any advice it would be very much appreciated.

    I regret to advise you that your entire interpretation of the law and rules pertaining to mortgage contract.
    You entered into a contract to borrow a sum of money secured against a residential property which you declared was for investment Not owner occupation by yourself, The funding as is generally common has Early Redemption Penalties which have to be paid whether you like it or not; What gives you the right to expect them to forego these applied penalties simply because the net effect would impact on the surplus equity once the loan and interest penalties are repaid. I am clearly sorry that you are undergoing changes in your living circumstances but you knew what you were doing when the lender accepted your application which included a personal declaration that the information was correct.
    To this extent, if you now disclosed that rather than letting the property you in fact moved into the property, you have by default conceded that you made a false declaration which in law tantamount to obtaining monies by uttering false statements, in short committing Mortgage Fraud, a crime which if prosecuted could result in a prison sentence or a conviction with a substantial fine. Once convicted your name would be placed on the Hunter System which is accessed by most banks & building societies and would make it extremely difficult to obtain mortgage funding irrespective of whether the application was a BtL or Residential.You would indeed be advised not to do this particularly as other agencies including Insurance Companies would require disclosure of any criminal convictions.
    Remember that if a loan is called in there is a window to undertake this failure to do so will allow the lender to appoint a Receiver of Rents to take charge of the property until such time as the property can be sold, for which there are additional costs to be deducted as well as the ERC’s, the net effect would reduce your free equity even further.
    Again I am sorry to read of your plight but you need to leave the problem and not blame / expect the lender to waive what is legitimately due to them, something the court would concur with.


      Originally posted by Landlord4321 View Post
      As it stands the early repayment fee is £6,000, a fee that would significantly dent my remaining equity. I appreciate a lot of people will state it was my fault for entering this contract in the first place, which I accept
      If you accept you freely entered into a business contract where the terms were explicitly stated and you were aware of those terms, then why now say it is "daylight robbery" to be held to those terms?


        Most mortgage companies offer a progressive ERC where the fee changes every year which reflects the lenders actual losses. In this case the ECR is fixed for the entire period, and I'm nearing the end of my term.

        The charge they will make is a lot more than the interest for the remaining year of the term. I feel this is unfair as they will make 4k profit.

        The ERC is fairly ambiguous and I misinterpreted it. I've had plenty of mortgages where the ERC reduces or the yearly capital allowance rolls over meaning the ERC can be reduced to reflect the length of time you are a customer.

        Yes lessons learnt, I've made a mistake and now I must pay.


          You are indeed correct that Fixed Rate Mortgages do have products which have an ERC on a reducing scale, a feature which is fully detailed in the Key Facts Illustration, unfortunately as in your case the ERC is set at a Fixed percentage throughout the initial incentive period, this in itself might have been a negative feature given that the lender was offering a rate slightly better than other lenders were offering at the time.


            I believe the ERC is a set rate. Some customers will pay the fee that will equate to less than the existing interest balance so will benefit. Other customers nearing the latter part of the deal will pay a charge considerably higher than the remaining interest balance.

            I guess like anything in this life there are losers and winners in all situations. Unfortunately I do not fall into the latter category.

            Onwards and upwards.

            Thanks for all of the replies. Very much appreciated.


              I think that your issue is experienced by many novice investors and naturally the whipping boy has together lender so may I take this opportunity of clarifying certain aspects of product pricing and by association funding.
              If you take out BM Midshires , The Mortgage Works who are funded by Lloyd’s Group and Nationwide BS,the vast majority of leading Buy to Let Lenders Fund their Loans by obtaining monies from Financial institutions who set rigid criteria on what they will lend on, the criteria so far as the borrower is concerned ,in turn lenders are charged specific premiums for the monies charged and these are non negotiable, all such forward funding costs are reflected in the pricing of the loan , product fees and importantly the terms to be exercised where a loan does not run the full term of the initial incentive ,in addition there are the administrative fees for post completion loans. It is always the intention of lenders to bulk up a package of mortgages with the intention of securitising the loans , the buyer in turn seeks to ensure that the initial “warehousing agreements” have been strictly adhered to. This by default prevents lenders from exercising “reasonableness” and as in your situation look as if they don’t care and are obdurate.
              The above is a simplistic explanation how many lenders operate so unfortunately when the loan was approved and accepted by you ,the rate to be charged was considered acceptable and as there was no intention of repaying until such time as the incentive expired you accepted the rigidity of the ERC. Unfortunately your change in circumstances have mitigated against you. I am sure going forward you will do more research into the options available remembering that sometimes the cheapest rate may not always be the best when noting the additional terms associated with the loan.
              Best luck going forward.


                My virgin buy to let is the same it's a fixed percentage of the balance for five years.
                so I am keeping hold of the property and probably will rent myself to avoid the fees if I sold within the five years.
                Once the five year fix is up I will probably sell and buy somewhere for myself and get out of buy to let.


                  I think you have made a wise decision,thanks for sharing you conclusion with the Forum, always good to know after earlier exchanges.

                  Best of luck for the future.


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