Early repayment charges

Consumers contact us with a range of complaints about early repayment charges, they may say that:

• the early repayment charge (ERC) is unfair
• the ERC is excessive, or wasn’t based on a reasonable pre-estimate of the cost to the lender of the mortgage being repaid early
• the ERC wasn’t made clear to them when they took the mortgage out
• they were misled about the ERC
• their application to transfer the mortgage to another property was turned down, so they’ve had to re-mortgage elsewhere – and now the lender wants to charge an ERC
• paying an ERC is unfair after their house was repossessed and sold
• the ERC should be refunded because of their circumstances

You have the opportunity to sort things out before we get involved. If your customer complains and you don’t respond within the time limits, or they disagree with your response, then they can come to us.

Find out more about how to resolve a complaint.

Once a complaint has been referred to us, we will ask you to provide information about your side of events. 

The typical information we would normally expect to see about this type of complaint includes:

• the latest applicable mortgage offer/product switch offer that you’re is relying on to calculate the ERC
• contact notes
• any applicable terms and conditions
• if the customer is complaining that they weren’t aware of or were mis-advised about the charge at the point of sale, we need to see point of sale documentation
• a copy of any redemption statements issued (if applicable)
• evidence of the customer’s payment to the mortgage that triggered the ERC
• if an ERC has been applied due to a declined porting application, refer to the Application declined guide
• if an ERC has been applied due to a decline portal applications, select our ‘Declined mortgage application or mortgage changes’ option to find information you need to provide. 

We may ask for further information or documents, depending on the circumstances of the case.

Read more about how we handle complaints.

When we look at complaints, we take account of a variety of things, for example:

• legal and regulatory standards – for example, Mortgage Conduct of Business (MCOB) provisions
• whether you fairly brought the charge to the customer’s attention before they agreed to take the mortgage
• how the agreement was entered into, and what the customer was told at that time
• how you calculated or applied the ERC
• whether the customer is experiencing financial hardship

We will always look at the underlying reasons that have led to an ERC being applied – and whether those reasons are the result of unfair treatment.

For example, if a lender refuses to let a customer port their mortgage to a different property – resulting in the customer remortgaging elsewhere, and incurring an ERC – we will look at whether it was reasonable for the lender to turn down the customer’s application.

Points to remember

MCOB says the ERC should be:

• disclosed in illustrations
• capable of being expressed as a cash value
• a reasonable pre-estimate of the costs the lender faces if a borrower repays early

Lenders don’t have to assess the likely cost for each individual customer. They can base the ERC on the product (or portfolio of products as a whole) and apply it to each contract.

To determine whether the ERC was based on a reasonable pre-estimate, you’ll need to show us how it was calculated. If the calculation method involves commercially sensitive information, we’ll handle it with care – though we won’t accept it as a reason not to provide us with the information.

If an ERC wasn’t a reasonable pre-estimate of the cost of early repayment, you won’t be able to charge it or replace it with a lower charge.

If we think an ERC’s being unfairly applied, we’d expect lenders to consider some (or all) of the following:

• refunding the ERC (with interest from the date of payment to the date of settlement)
• paying compensation to include any additional cost to the customer of paying the charge (where they had to borrow more money or lose out on savings interest, for example)
• paying compensation for any trouble, upset or distress or inconvenience the customer has experienced 

Read more about understanding compensation.

Search our decisions database to find out about past decisions on early repayment charges.