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

Decision detail

Summary

Mr and Mrs P complained about an early repayment charge (ERC) of approximately £6,700 they incurred when they refinanced their Santander mortgage in March 2021, arguing it was unfair to charge the full ERC when they remained with Santander and simply moved to a new property. The ombudsman found that the 2019 mortgage and 2021 mortgage were entirely separate contracts, and by taking out the new 2021 product, Mr and Mrs P repaid the original mortgage early, triggering the contractually agreed ERC. The ombudsman determined that Santander's ERC was a reasonable pre-estimate of costs calculated on a group basis in accordance with FCA regulations, and that Mr and Mrs P knew the price they would pay for early repayment. The complaint was not upheld and no refund was ordered.

The Ombudsman's reasoning

The ombudsman reasoned that Mr and Mrs P's 2019 mortgage was a separate contract from the 2021 mortgage, and by taking out the new 2021 product, they repaid the original mortgage early and thus triggered the ERC as contractually agreed. The ombudsman found that Santander's ERC was a reasonable pre-estimate of costs calculated on a group basis in accordance with MCOB rules, which permit lenders to estimate costs across similar mortgages rather than on an individual basis. The fact that Mr and Mrs P remained with Santander did not mitigate the lender's loss from early termination of the original fixed-rate contract, as the new mortgage was an entirely new contract priced separately. The ombudsman rejected the argument that the ERC was a penalty, noting it was a contractual term for exercising the right to end the mortgage early, and Mr and Mrs P knew the price they would pay.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website