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Early redemption charges

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 23. September 2022

Looking to speak to mortgage brokers about early redemption charges. 

  1. Are you seeing more customers opting or interested in paying early redemption charge to switch to a new deal?
  2. When would you recommend this and when wouldn't you recommend this? 
  3. Do you think this will become more common? 

6 responses from the Newspage community

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Mike Staton
Director at Staton Mortgages
We are seeing more customers request to pay early repayment charges to come out of their current deal to go onto a longer term fixed. Each case needs to be looked at in its own merit, but in my opinion, paying an ERC purely because you are speculating over interest rates is ludicrous. Unless you stronly feel that interest rates will continue to increase, then you should not be doing this. With the cost of living crisis putting more pressure on the public, more people are wanting to consolidate debt to ease the pressure on their monthly outgoing, sometimes customers dont have a choice and are concerned as their expenditure as become higher than their income. I think we will see more ERCs paid in the next 5 years, I do believe rates will drop and with lenders currently charging more for 2 year fixed rates than 5 years, i think we will see people want to pay the ERC to come out of the higher rate that they have tied into
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Rob Peters
Principal at Simple Fast Mortgage
Careful analysis needs to be undertaken when comparing whether it is financially beneficial to pay an early repayment charge to move onto a new fixed rate. Expert mortgage advice is needed now more than ever to assist borrowers in making sensible financial decisions. Of course none of us know where interest rates are going to be in the future, and advice should not be based on rate predictions, but on customer circumstances. It's likely that some borrowers on short-term fixed rates, who are now considering moving onto a longer term deal, originally selected based on cost rather than circumstances, and it's important not to make the same mistake again.
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Imran Hussain
Director at Harmony Financial Services
I have yet to come across anyone that wants to pay a early repayment charge to come out of a lower fixed rate to now pay more as rates as an average for a 2 year and 5 year fix are now well above 4% and likely to hit 5% by the end of the year, the only time this is viable is if a client is on a higher rate than what is currently on the open market and if rates do come down in the next 18 to 36 months anyone on a 5 year fix right now may well look at paying a ERC as a option if it saves them money.
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Mark Robinson
Managing Director at Albion Forest Mortgages
I have had a few enquiries lately to pay their ERCs and remortgage now to avoid higher rates next year. It is difficult to predict with absolute certainty what will happen next year, but our clients are expecting rates to rise further and concerned about much higher rates next year. As we get further into this recession I imagine we will see more and more customers wanting to remortgage early and incorporate the Early repayment fees.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
We're seeing this more and more by the week it seems. Waiting even a few weeks could cost a customer hundreds of pounds in extra interest payments on a new deal such is the pace of change and for some people removing that genuine concern of 'am I going to be able to afford the mortgage when I come off of the fixed rate' is worth taking the hit of an early repayment charge.
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
Hi, For question #1: Yes, this now seems to be less of a concern to clients as they see rates skyrocketing in the next few quarters that it will actually pay off in the long run to pay a few thousand pounds in early repayment charges in order to lock in a lower rate now than have to find a rate in 6 months’ time. For question #2: It's hard to say when It should and should not be predicted as unfortunately no one has a crystal ball that tells them the future of rate rises so it's all rather speculative. If I have a client all I can tell them is to do their research on the rates and economy and direct them to our in-house economist. If they think the rates will rise I ask them their predicted worst-case scenario rate and we make a chart calculating the cost of rates then VS the cost of rates now + their ERC’s and see which option works out cheaper. For question #3: I can only see more and more clients wanting to lock in for a longer fixed rate now so I can definitely see this becoming more common as rates continue to rise following Thursdays announcement.