The mutual and its subsidiary brand Accord Mortgages confirmed an Early Repayment Charge (ERC) will apply where a borrower accepts a product transfer – where you switch an existing mortgage to a new deal with the same lender – but subsequently cancels it to remortgage with another bank or building society.
This could leave borrowers essentially stuck with YBS or Accord in a bid to save thousands of pounds in ERCs during the current cost-of-living crisis, while others may decide to forge ahead if they can secure a better deal over the long-term elsewhere.
YBS said its ERC structure differs from product to product, but is made clear to mortgage borrowers on their documentation and within communications.
For a two-year deal, it is 2.5 per cent in the first year, for three years it’s three per cent, for five years it’s five per cent and for 10 years it is seven per cent in the first year. The majority of customers opt for the two- or five-year deals, it confirmed.
Taking the early exit fee of five per cent being charged on the outstanding balance for cancellations in year one of a five-year fixed rate mortgage deal, then based on the average £220,000 mortgage advance, borrowers would pay £11,000 to exit an earlier secured deal that may now not be suitable for them.
As ERCs apply to people transferring away from YBS/Accord, it confirmed this must be paid by the customer prior to moving. Further, any product fees paid upfront will not be refunded if they transfer to another lender.
The cancellation policy on its website reads as follows:
- Product switching – Once the product has been agreed for a product transfer, we won’t allow clients to switch products between then and completion.
- Product transfer cancellation – Once the product has been agreed, there is no way to retract that offer without incurring ERCs. These ERCs will be applied automatically at redemption.
Mortgage mayhem and Mortgage Charter
At the height of the mortgage turmoil as rates soared, borrowers were urged to lock in fixed rate deals up to six months in advance to help cushion the blow. For some borrowers coming to the end of their mortgage deal, they may have decided to stick with their current lender so they wouldn’t have to go through an affordability or credit check again (as long as no increase to the mortgage balance or mortgage term).
However, that decision may now prove costly for YBS and Accord borrowers.
But it confirmed that if a borrower has secured a product transfer but wants to switch to another like-for-like product transfer with it, then they won’t incur the ERC.
However, it’s important to note the inclusion of ‘like-for-like’ here. If a borrower opted for a two-year fixed rate mortgage as part of the product transfer but then decided to go for a five-year fixed deal instead – ie not ‘like-for-like’ – then they would be subject to the ERC.
YBS said: “ERCs are payable by customers remortgaging to another provider, not those transferring to another, like-for-like product with us. Under the increased flexibility requirements of the Mortgage Charter, we require that they choose an alternative product which, while offering a different rate, has the same fee structure and term length. This is in line with the Charter’s objective of allowing switching so that customers are able to benefit from rate reductions during the transfer window, as opposed to increasing optionality for customers to simply change their minds on product type.”
No plans to change
Last week, an investigation by Mortgage Solutions sister title YourMoney.com exclusively revealed that Santander applied an ERC for product transfer borrowers in this same situation, but after bringing this unfair term to its attention which brokers argued went against the spirit of the Mortgage Charter, the bank scrapped this exit fee overnight.
YBS confirmed it does not have any plans to change its policy regarding the charging of ERCs for product transfer cancellations, adding “we do constantly review all our policies to take account of customer feedback”.
It said the ERCs “reflect the cost of acquiring the product transfer which include the cost of cancelling the hedging of the product if the product transfer does not go ahead”.
‘Policy causes harm to families’
Craig Owens, mortgage and protection consultant at YellowBrick Mortgages, said: “It is disappointing to hear that Accord/YBS will not be updating their policy in line with the rest of the industry.
“By signing up to the government Mortgage Charter, they stated they will try to help people manage their mortgages effectively in this difficult time. Yet they have a policy where they will charge full Early Repayment Charges on a product that has not even started if a client wants to find a better deal elsewhere.
“This is a policy that does nothing except cause harm to families up and down the country trying to limit the damage of the rate increases. I hope they can reconsider this in future and actually deliver a fair outcome for their customers.”
Nicholas Mendes, mortgage technical manager at John Charcol, said: “The Mortgage Charter is designed to encompass the spirit of supporting mortgage holders and lenders going beyond the means than they currently do.
“YBS are not the first and certainly won’t be the last with regards to choosing to keep its policies unchanged following some disconcerted voices.
“In the past week Santander made changes to its policy once it was brought to light how being proactive in securing a cheaper deal penalised mortgage holders; this open and fair attitude is welcomed in the current climate.
“Actions speak louder than words.”
FCA monitoring market
It is understood that the Financial Conduct Authority (FCA) will be monitoring the market closely to make sure consumers are treated fairly, especially as its Consumer Duty comes into force at the end of July.
An HM Treasury spokesperson, said: “The brand new flexibilities created by our Mortgage Charter, covering 90 per cent of the mortgage market, are already helping people get through this difficult time.
“Customers can lock in to a new deal up to six months before their current deal ends – providing certainty over their future payments – and request a better like-for-like deal with their lender if one becomes available before their deal starts. The Charter also provides extra protections against repossessions and makes it easier to manage monthly repayments.”
