Not upheld: excessive early repayment charge complaint against The Mortgage Works (UK) Plc

Decision detail

Summary

Mr Y complained that the 7% early repayment charge on his buy-to-let mortgage with The Mortgage Works was excessive and unfair, arguing it did not represent a reasonable pre-estimate of costs and appeared to include general business overheads. The ombudsman found the ERC was clearly set out in the mortgage offer, which Mr Y agreed to knowingly, and that it represented a reasonable pre-estimate of costs calculated fairly across a tranche of mortgages rather than individually. The ombudsman noted that while Mr Y felt the charge was higher than industry averages, it was reasonable for longer-term products and he was aware of it before taking out the mortgage. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman found that the ERC was clearly disclosed in the mortgage offer and Mr Y agreed to it knowingly. An ERC is not a penalty but rather a reasonable pre-estimate of the lender's costs for early termination. It is reasonable for lenders to calculate ERCs on a tranche basis rather than individually, as it is complex and impossible to predict individual customer behaviour. The ombudsman was satisfied that TMW's calculation was fair and did not include unrelated business overheads. Although Mr Y felt the charge was excessive compared to industry averages, the ombudsman noted that ERCs are typically higher for longer-term products and Mr Y was aware of the charge before agreeing to the mortgage.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website