Boulger’s forecast follows industry concerns, reported in the last issue of Mortgage Introducer, that ERC illustrations on sourcing systems could be inaccurate due to differing methods of calculation.
In the report Bill Safran, joint managing director of Trigold, reassured brokers that the only time there could be a problem was if ERCs were based on interest rates where specific calculations from the lender would be required. He claimed that only a tiny minority of lenders used this method.
However Boulger commented: “By Mortgage Day most, if not all, lenders who currently calculate ERCs on so many month’s interest will move to a percentage basis. This is because MCOB 5.6.84R(1)(g) says the maximum ERC that the customer could be charged must be shown as cash amounts.”
He added: “If you calculate the ERC on so many months interest, the maximum will be infinity because theoretically the SVR could go up to a 1,000 per cent or whatever figure. Obviously calculating on so many month’s interest at a fixed rate is fine, but on a SVR it’s going to be difficult or nigh on impossible to put this in cash terms.”
Safran declined to react to Boulger’s comments.
