Mike Fitzgerald, sales director at Brentchase Financial Services, said his client had repaid 10 per cent of the loan in each of the first two years of the fixed rate term but was then forced to sell the home before the end of the two-year period due to divorce proceedings.
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However, he was shocked to find the lender demanded the ERC applied to the original amount and not the balance of the mortgage, forcing the client to pay a much larger ERC than expected.
Fitzgerald said: “On the Key Facts Illustration (KFI), it says about the 10 per cent overpay option but if lenders are going to charge on the original amount, that should be made completely clear on the KFI as well. How can this be ‘Treating Customers Fairly’ (TCF) as people expect to pay a penalty but on the balance and not the original loan amount?”
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Fitzgerald believed mortgage lenders were wrong in doing this and were in clear violation of TCF.
Mark Sismey-Durrant, chief executive of Heritable Bank, admitted he was surprised that lenders would do things this way. He explained: “Giving an overpayment option is an exposure which lenders have to take as they are buying the fixed money at the swap price at the start of the mortgage. There are pluses and minuses to the whole thing, but they should be charging on the remaining balance, or at least that’s what I would expect.”
