Redemption Penalty

[bayman292002]

Hi all, firstly may I apologise if this appears in the wrong area.

In 2005 I took out an Intrest only/Secured Loan for £30k secured on my property. In 2006 I re-mortgaged and the lender would not lift the charge to allow the new mortgage to be secured. I had to pay the loan back to enable the mortgage to go ahead and so faced a £3k+ redemption charge. I tried to argue the point at the time but faced a brick wall. Can aanyone advise me if this charge is something I can attack!

Many Thanks in advance

Bayman

[rickyd]

Was there a mortgage in place at the time you took out the secured loan? If there was, the loan would be a second charge which helps a little. The remortgage should simply replace one first charge with another. If there was no mortgage, the loan may be a first charge, meaning that the mortgage would need to be a second charge, which is unusual.

 

The reason is logical in that mortgages tend to be bigger than loans so the mortgage company would want a the first charge to ensure they had sufficient security.

 

Sadly the loan company do not have to revoke their charge to permit more borrowing (why should they?) and the early redemption charge should be clearly noted in the original loan agreement so I would start with that.

[bayman292002]

Hi, Thanks for your reply. There was a mortgage in place when the loan was taken out so you would assume that as a second charge that it could stay as it was. But the new mortgage comapny explained that they had to lift the second charge to put the new charge in place, then re-apply the second charge. The loan company(SPML) would not allow this to be done so I had to pay the loan off in full.

[rickyd]

I think the detail is getting a bit cloudy here. The mortgage company do not need the second charge to be removed to allow them to assign a first charge, but they certainly need the approval from the second charge holder. It's because the second charge was activated after the loan company had looked at the equity in the property, worked out how much wasn't tied into the mortgage and decided there would be enough to provide security for them.

 

If there is a change in owner or value of the first charge then the second charge holder needs to agree to a deed of postponement on their security which they would only do if they still would have sufficient cover for thei loan.

 

If you look at it from the loan company's point of view, they held a valid security at the outset of the loan so why would they voluntarily weaken their position to accomodate another lender? It can happen, I've seen it done but there needs to be a decent amount of free equity to play with and in the current market with falling property values it will be harder to achieve.

 

Hope this helps?