Could the removal of ERCs become a trend?

Pure Retirement has reintroduced its Heritage Freedom range, enabling customers to repay up to 20% or 40% of their loan each year without an early repayment charge (ERC).

So, could the removal of ERCs become a trend moving forward?

Mortgage Introducer reached out to brokers to find out.

Could the removal of ERCs become a trend?

Stephen Perkins (pictured left), managing director at Yellow Brick Mortgages, cannot see ERCs being removed from the market on the whole, especially as the sector is expecting rates to reduce over the coming five years.

“Lenders structure their ERCs to ensure the deal agreed stays in place for them to earn the expected interest, or, if paid off early, that profit is recouped by the charges,” he said.

It also, Perkins added, stops short-term borrowing, which would leave lenders out of pocket after the costs of arranging and funding a mortgage.

“Of course though, there will be products without them, often trackers or those with high arrangement fees to offset any potential loss in interest or ERC,” Perkins said.

Scott Taylor-Barr (pictured right), financial adviser at Barnsdale Financial Management, agreed with Perkins that ERCs are an important component of product pricing, especially on fixed-rate deals, so removing them would invariably drive up the mortgage interest rate; be that on a regular mortgage or a lifetime product.

Given that most people will not be in a position to overpay on their mortgage, Taylor-Barr said, removing ERCs would simply make their mortgage more costly with no real benefit to them.

“It is, however, a product worth having in most lenders’ range, as there will always be someone for whom the ability to overpay large parts of the mortgage is an important part of their needs and they are happy to pay a little extra for the facility,” he said.

Would the removal of ERCs be a benefit?

Christian Duncan, managing director at Manchester Mortgage Centre, believes that the latest news from Pure Retirement is a positive step for the market and one that can only benefit its consumers, by allowing them to lower their debt owed.

“In recent months, we have also seen NatWest increase its overpayment with no ERC threshold to 20%; I believe we will see this introduced by more high-street lenders over the coming months now,” he added.

As mortgage rates continually increase and lenders publish record breaking profits, Duncan believes that all mortgage lenders should be more sympathetic towards customers looking to reduce their mortgage debt and build financial resilience.

Gary Bush, financial adviser at Mortgage Shop, agreed with Duncan that the relaxation of all lenders to allow account holders to repay, penalty-free, 20% of their mortgage debt would be a useful move for the industry. However, Bush added that totally removing ERCs for all deals across the board, especially for fixed products, ‘is for the birds.’

“Lenders rely on holding on to clients, to let a free-for-all occur would seriously affect the competitive nature of the UK mortgage market,” he said.

Do you believe the removal of ERCs could become a trend in the mortgage market moving forward? Let us know in the comment section below.