Early Repayment Charge: stupid mistake lands me a £5,000 bill from Nationwide

Updated on 31 January 2018 | 11 Comments

I could have avoided handing over thousands to Nationwide had I simply paid more attention. Here’s my cautionary tale.

I generally consider myself a financially savvy individual.

I switch energy deals reasonably often, I own a current account that suits my financial needs and I pay no interest on credit card debt on the occasions that I have any.

I also happen to write and edit articles about being financially savvy, which has helped me run a fairly tight ship.

But I’ve recently discovered that I committed a monumentally stupid mistake that’s going to land me with an eye-watering £5,000-plus bill from Nationwide.

So I thought I’d write about it as a cautionary tale highlighting how easily it can happen if you aren’t paying attention.

Here’s what’s happened

Without going into too much detail about my personal life, I need to sell my property now and close the mortgage account.

There is no other way around my current situation.

I’m currently coming towards the end of a five-year fixed-rate mortgage, which is due to expire early next year.

However, because I’m still within that five-year window, I’ll have to pay Nationwide what’s known as an Early Repayment Charge, or ERC.

Confused by all the fees? Read our mortgage jargon buster

How ERCs work

As the name implies, it’s a penalty you pay if you clear your mortgage during the fixed-term portion of a deal.

It’s usually set as a percentage of the amount you owe and lets the lender ensure it can cover any costs incurred and make some money regardless.

I was well aware I’d need to pay this, but only recently did I realise just how big that payment would be.

What I did wrong

There are effectively two types of ERCs.

The first, and more common, one is a tiered system whereby the percentage you repay reduces as you near the end of your fixed-rate period.

For example, with a five-year fixed-rate mortgage you may need to pay an ERC of 5% in the first year, 4% in the second year, and so on until 1% in the fifth year.

The second, less common, ERC is where you're charged a percentage of the total amount outstanding regardless of where you are in your fixed-term.

This means the penalty you pay hardly reduces at all from year to year.

And that’s the one I am facing.

When signing the contract, I had noted the hefty ERC of 5% but then failed to read through the specifics.

To be clear, I would not have chosen a deal charging a percentage of the loan as I knew this could leave me vulnerable to exactly the situation I now find myself in.

Compare mortgages with loveMONEY – just make sure you read the fine print!

Making no excuses

I could rattle off a host of reasons about why I failed to spot this key information.

I had a lot going on at the time I signed the contract… most deals offer tiered ERCs... Nationwide has a reputation for being one of the friendlier lenders out there so I didn’t need to worry about it…

But the truth is I failed to read through the charges, signed the document, and I am now quite rightly paying the price.

Well over £5,000, in case you were wondering.

What am I doing about it?

Aside from kicking myself repeatedly, I have taken steps to reduce the amount I will be charged by making the maximum overpayment allowed this year (10%), which will at least save me a few hundred quid when it comes time to pay the charge.

Of course, this doesn’t actually change the fact that, had I simply taken the time to examine the type of ERC at the time, I could have saved myself a small fortune by choosing a different deal.

It was a stupid mistake and one that I will use as a rather expensive lesson in the importance of reading documents thoroughly before signing.

To be honest, it’s an embarrassing situation for me to find myself in, being a financial journalist and all that.

But I wanted to stress the importance of clearly understanding charges and considering how you might be affected not just today, but years in the future should your financial situation change.

Am I alone in my staggering stupidity? Have you ever been hit with a charge after failing to read the fine print in full? Share your experience in the comments section below. Or simply berate me.

Please note this isn’t about putting the boot into Nationwide. Most lenders charge ERCs and the fault lies squarely with me anyway. I also offered Nationwide the opportunity to comment on this story but heard nothing back.


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