Early repayment charges
Do you deal with mortgage complaints about early repayment charges? You might be working for a financial adviser, mortgage broker or lender, or another type of organisation.
This page will give you an overview of how we approach complaints about early repayment charges (ERC).
On this page
Do you have a complaint about early repayment charges?
Complaints we deal with
Consumers come to us when they believe an early repayment charge is unfair because:
- it's too much money, or doesn't reflect the costs you might have incurred because they repaid their mortgage early
- you didn't make it clear when they took out their mortgage that an ERC applied, or you misled them in some way
- you turned down their application to transfer their mortgage to another property, so they had to remortgage with another lender
- you repossessed their property and sold it, charging an ERC in the process
- you haven't taken their circumstances into account.
Rules on early repayment charges
When we look at complaints about ERCs, we use the regulatory and legal standards that applied at the time of the event that the consumer is complaining about.
The Mortgages and Home Finance: Conduct of Business (MCOB) sourcebook sets out how mortgage lenders should provide services to borrowers, covering regulated:
- mortgage contracts (including first and second charge mortgages and bridging loans)
- equity release products
- home purchase plans, and
- sale and rent back agreements
We would expect you to be aware that MCOB says ERCs should:
- be disclosed in illustrations
- be given as a cash value
- be a reasonable pre-estimate of the costs you as a lender would face 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 – and apply it to each contract.
However, these rules don’t apply to unregulated mortgages, such as buy-to-let products. But the legal requirements are similar and we’d still expect an ERC to be:
- clearly set out in the loan agreement, and
- set at a level to cover your costs.
Handling mortgage ERC complaints before they come to us
Good complaint handling can repair a relationship, build confidence in financial services, and help customers understand your financial products.
We'd expect your complaint handling teams to fully understand:
- all relevant requirements and regulations, including the Consumer Duty
- what to send us when we're dealing with a complaint about your firm.
Our decisions database holds all the final decisions we’ve published since 1 April 2013. They're anonymised to protect the identity of complainants but are based on real-life complaints, so will give you a good picture of how we resolve disputes.
Our complaints data will give you an idea of the volume of complaints we receive and resolve, and the proportion that we have upheld in consumers’ favour.
How we resolve mortgage ERC complaints
We only look at complaints you've had an opportunity to look into first. If the consumer is unhappy with your decision, or you don't respond to them within the time limits, they can come to us.
Each case is different, so what we require will vary. But we’ll look at the facts and evidence from both you and your customer. We’ll usually consider:
- relevant laws and regulations, and the regulators’ rules in place when the event happened
- guidance, standards and codes of practice in place at the time of the event
- the mortgage offer or loan agreement and terms and conditions. This sets out your entitlement to an ERC and is especially important if the customer is complaining they didn’t know about – or weren’t told about – the ERC when they took out the mortgage
- your contact notes
- what you told your customer about the ERC and whether they were aware of it before they agreed to take the mortgage
- any applicable terms and conditions
- evidence of the mortgage payment that triggered the ERC
- a copy of any redemption statements issued, if applicable
- your reasons for applying the ERC – and whether those reasons are the result of unfair treatment
- the relevant mortgage or product-switch offer that you’re using to calculate the ERC
- how you calculated or applied the ERC, and whether it was based on a reasonable pre-estimate
- whether the customer is experiencing financial hardship
- an explanation as to why you refused a mortgage application – for example to port the mortgage to a new property – if that's what led you to apply the ERC
- an explanation of why the ERC was set at the level it was, if the complaint is about whether the ERC represents a reasonable pre-estimate
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Your customer may believe you put them in a situation where they couldn’t avoid an ERC. This might be, for example, because you refused an application to port their mortgage to a new property. If so, we’ll look at your reasons for that decision.
FCA rules allow lenders to agree porting applications that don’t involve further borrowing without a detailed affordability assessment. So it might be unfair to refuse a porting application on affordability grounds when it doesn’t involve further borrowing, or because it’s an interest only mortgage.
However, you can refuse a porting application on other grounds. For example, the value of the new property may mean the ported balance would go outside the loan-to-value range for the interest rate the customer wants to port.
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We’ll look at whether it was fair to charge an ERC – especially if it tipped the customer into negative equity and left them facing a shortfall.
We might also tell you to refund the ERC if we don’t think you offered appropriate forbearance before repossession.
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Your customer may feel that the ERC doesn’t represent a reasonable pre-estimate of your costs.
If so, we’ll expect you to show us how you calculated the ERC and show us evidence that it did amount to a reasonable pre-estimate. If this evidence is commercially sensitive, we will receive it in confidence without disclosing it to the customer. However, we wouldn’t accept that as a reason not to share it with us.
We follow the FCA’s dispute resolution rules (DISP) and will take into account how you’ve tried to settle the complaint. We’ll handle any commercially sensitive information with care, but don’t accept commercial sensitivity as a reason not to provide us with information.
If we uphold a consumer's complaint, we'll tell you what you need to do to put things right. That could be by paying:
- the ERC back, with interest from the date of payment to the date of settlement
- paying compensation, including any additional cost your customer may have incurred when paying the charge – for example, if they had to borrow money or lost savings interest
- paying compensation for any distress or inconvenience the customer has experienced
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.
Case studies
‘I couldn’t transfer my mortgage to another property because the lender changed its age limit’
Mortgages
'I've been charged because my lender wouldn't agree to my request for a larger mortgage'
Mortgages
'My lender didn't say there'd be an early repayment charge when I asked about redeeming my mortgage'
Mortgages
Business Support Hub
Businesses and consumer advisers can contact our Business Support Hub on 020 7964 1400 for information on how we might look at a particular complaint, or for guidance on our rules and how we work.
We also work with businesses and other organisations to help prevent complaints.