Not upheld: early repayment charge (ERC) fairness and reasonableness complaint against Santander UK Plc

Decision detail

Summary

Mr and Mrs B complained about an early repayment charge (ERC) of approximately £10,120 imposed by Santander when they sold their buy-to-let property and repaid their mortgage in December 2025, three years before the end of the fixed rate period. They argued the ERC was disproportionate to the 12 remaining monthly payments (totalling £4,030) and requested a waiver or alternative arrangement, which Santander declined. The ombudsman found that Santander acted fairly because the ERC was a reasonable pre-estimate of costs in line with FCA guidance on mortgage ERCs, was clearly disclosed in the mortgage offer, and Santander was entitled to calculate it across a group of similar mortgages. The ombudsman rejected arguments that the ERC should be reflected in the APRC or that Santander should have agreed to bespoke alternatives, and did not uphold the complaint.

The Ombudsman's reasoning

The ombudsman applied the FCA's MCOB guidance on ERCs (which applies to residential mortgages but provides good industry practice for BTL mortgages) and found that Santander was entitled to set an ERC based on a reasonable pre-estimate of costs across a group of similar mortgages rather than individual loan costs. The ERC was expressed as a cash value, was clearly disclosed in the mortgage offer, and Santander's calculation methodology was fair and reasonable. The ombudsman rejected arguments that the ERC should be reduced based on the number of remaining payments, that it should have been reflected in the APRC calculation, or that Santander should have agreed to bespoke alternatives. The ombudsman noted that ERCs will sometimes over-estimate and sometimes under-estimate actual costs, but this is permitted under regulatory guidance as long as the pre-estimate was reasonable when set.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website