Santander mortgage borrowers who signed up for a fixed rate product transfer with the bank up to four months before their current deal matured could have faced an Early Repayment Charge (ERC) if they wanted to leave the lender.

The charge would have been triggered if the borrower accepted the new product transfer – where you switch your existing mortgage to a new deal with the same lender – but then cancelled anytime, even months before it was due to start if they decided to switch to another lender.

The only way to avoid this charge was to take up another mortgage product with Santander.

An exclusive YourMoney.com investigation uncovered that out of 16 major mortgage lenders, Santander was the only one to penalise product transfer borrowers in this way.

But, since our investigation, the bank has today updated its policy to remove this penalty, and Santander confirmed it intends to update the wording on its website in the “coming weeks”.

Sponsored

Wellness and wellbeing holidays: Travel insurance is essential for your peace of mind

Out of the pandemic lockdowns, there’s a greater emphasis on wellbeing and wellness, with

Sponsored by Post Office

It currently states: “Once [the customer has] accepted the offer [product transfer] they won’t be able to cancel it unless they are booking a replacement deal with Santander”.

Had the policy not been changed, it meant existing Santander borrowers who secured a product transfer (fixed rate deal) could have faced an ERC of 5% of the outstanding mortgage balance simply for changing their mind and moving to a new lender, such as if they had found a better deal.

Based on the average mortgage advance of £220,565 in the UK, a Santander customer who secured a five-year fixed rate deal as part of a product transfer could have ended up paying a whopping £11,028 ERC penalty.

This is because Santander charges a 5% penalty for exiting a mortgage deal within year one of a five-year fixed rate.

‘Penalising borrowers…not in the spirit of the Mortgage Charter’

One broker said it was good to hear the restriction had been lifted.

Nicholas Mendes, mortgage technical manager for mortgage broker John Charcol, said: “It’s good to hear that Santander has updated its product transfer restrictions. Penalising existing mortgage holders who are on the ball and arrange a product transfer months in advance, who have since decided to remortgage to another lender to ensure they get the best deal, was not in line with the spirit of the Mortgage Charter.”

To support anxious borrowers, Chancellor Jeremy Hunt drew up the Mortgage Charter, a set of commitments that the UK’s principle mortgage lenders have agreed to follow to help borrowers who may be struggling amid the current cost-of-living crisis and market turmoil.

Among measures which include allowing borrowers to switch to an interest-only mortgage or extend their mortgage term, customers approaching the end of their fixed rate deal now have the chance to lock in a deal up to six months ahead. According to the Charter, customers who do so must be allowed to request a better like-for-like deal with their lender right up until their new product term starts.

Santander confirmed to YourMoney.com that it had updated its approach to give customers increased flexibility based on the Mortgage Charter. All mortgage customers can cancel their new product up to 14 days before the new deal is due to start if it is no longer needed.

Further, from 25 July, the bank will also allow borrowers to book new deals up to six months in advance, extending the current four month limit.

Rates soared as remortgagors urged to lock in early

Over the past 12 months, five-year fixed mortgage rates have jumped from 4.02% to 6.31%, according to data site Moneyfacts. As rates soared, brokers and experts urged homeowners to secure deals in advance of their current deal maturing. Typically, homeowners can secure a deal up to six months in advance which would somewhat help protect them in a rising rate environment.

And with 1.5 million fixed rate mortgage deals set to expire in 2023 – 800,000 in the second half of the year – according to trade body UK Finance, homeowners have been braced to expect to pay hundreds of pounds more on their mortgage bills after rolling off sub-2% deals secured in the last five years to above 6% now.

A major advantage of choosing a product transfer with your current lender, instead of remortgaging to a new lender, is not having to go through an affordability or credit check again as long as you are not increasing your mortgage balance or mortgage term.

For borrowers who have suffered a credit blip or who have changed jobs and now earn less since taking out their original mortgage, this is an attractive option. That’s because these changes could result in a remortgage with a new lender being declined.

However, for homeowners who secured a product transfer amid the mortgage frenzy, they may now want to cancel their product switch if mortgage rates have fallen since they locked in; their remortgage needs have changed and they need to raise extra money for urgent home repairs or debt consolidation; or if their circumstances have improved and they are now eligible for better rates with another lender.

Lenders’ product transfer switch policies

Mendes said: “While its beneficial to plan ahead to ensure you secure the best deal, you need to equally make sure you’re aware of the lender cancelation policy if you decided to opt for a new deal or it could be a costly mistake.”

YourMoney.com analysed the mortgage switching cancellation policies of 16 leading lenders. Here are our findings:

Cancel any time

Existing customers of HSBC, NatWest, RBS, Lloyds Bank, Halifax, Bank of Scotland, Barclays and Leeds Building Society can cancel a pre-arranged mortgage rate switch free of charge any time up to the point their current deal expires and the new deal is due to begin. New borrowers who have arranged to remortgage to these banks months in advance can also do the same.

Although the banks’ policies state this can be done at any time, borrowers are not advised to leave the cancellation until the day before if that day is a Sunday.

Check the deadline

Skipton Building Society allows all borrowers to cancel a product transfer or remortgage free of charge but needs two working days’ notice. For borrowers who are cancelling and switching to another rate with the mutual, they need to give at least two days’ notice to give the lender time to prepare the new documents so borrowers are advised to leave more time before their current rate expires to avoid ending up on the lender’s standard variable rate.

Coventry Building Society’s new and existing borrowers can cancel their rate switch or remortgage penalty free until the 23rd of the month before the transfer. For example, if the rate switch is due to start on 1 August, it must be cancelled before 23 July.

TSB says product transfers and remortgages start on the 1st of the month. Customers have seven days before then to cancel their rate switch.

Santander allows all mortgage customers to cancel their new deal up to 14 days before it starts. Any mortgage product fees that have been paid upfront will be refunded to borrowers if they cancel before the deadline.

Nationwide’s existing borrowers who want to cancel their rate switch must do this on or before the 20th of the month, before the switch is due to go live. If this falls on a weekend or bank holiday, this should be done on the next working day. There is no penalty for cancelling.

For example, a borrower could choose their new deal now to take effect 1st January. They can cancel it at any point up to the 20th of December. If they cancel then any product fees are refunded.

Borrowers remortgaging to Nationwide, can cancel at any time before it begins and receive any mortgage product fees paid upfront back.

Virgin Money, Clydesdale Bank and Yorkshire Bank, which are all part of the Virgin Money group, allow customers to cancel a rate switch or remortgage at any time before it starts. But existing customers who want to switch to a new rate at the same time, must have it agreed at least two weeks before their current deal expires. All upfront fees will be refunded.

A Santander spokesperson said: “We are committed to supporting our customers and in line with the Mortgage Charter, customers who accept a mortgage offer with Santander can cancel their deal up to 14 days before their new term is due to start without any charge.”