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It’s time lenders called time on ERPs

It would be easy to mask the real reason for my calling time on early redemption penalties by saying it would make it easier for consumers to understand how mortgages work. But I won’t. The truth is that ERPs can and often do stop home owners moving or remortgaging.

So that’s why I think lenders should call time on ERPs. To someone like myself who strives to resolve problems it makes sense that if there is a clause in a mortgage agreement that causes the loss of freedom to move home it should simply be removed.

There is a way forward without ERPs. You only have to hit a few buttons on Trigold or Mortgage Brain to see there are many lenders offering products free of them. Granted some of those same lenders are still offering ERPs with some products, but as with the wretched mortgage indemnity guarantee it’s time lenders introduced all products without this archaic penalty. It would simplify things for brokers and clients and hand back the freedom to move without incurring a massive financial penalty.

It’s easy to say ERPs are covered in Key Facts Illustrations and explained at point-of-sale but the public does not hear the negatives, and of course they have selective memories when things don’t go their way.

Six years a go I met Treasury officials to present a report I had written and to discuss the mortgage industry in general. The ERP was a topic discussed as was generic mortgage application forms. It was my opinion then that ERPs should be abolished due to the number of complaints I had received over the years from consumers. The reason I raise the matter again now is that in my area many properties are in negative equity due to the owners purchasing in the boom times of 18 months ago. Lack of equity affects them and they wish to remortgage to debt consolidate, then realise that due to a hefty ERP, they are unable to do so.

There are ways of structuring deals to make them both attractive and profitable and the ERP is one area that should be looked at.

On the positive side, imagine having a product to sell whereby you can say to your client, “Here’s a good product and one that gives you the freedom to move when you want to without incurring a financial penalty.” It’s swings and roundabouts. A move to abolish ERPs should have the same effect on all lenders over a matter of time.

Think about abolition now, lenders. You might win over many potential clients and you would certainly endear yourself to every broker in the land.


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