Take out a fixed rate mortgage and - if you want to repay it early, you may be faced with a penalty.

The Office of Fair Trading has decided that some penalty clauses are so severe as to be "Unfair". This makes them unenforceable.

Annette Marshall writes

I, like many others, fixed the rate of my mortgage with the Abbey National some time ago and, very foolishly, did not read the small print properly. I did not realise how big the penalty would be for early redemption or for how long this penalty would be imposed. I now face paying them over £1,000 to redeem my mortgage. I feel I am being blackmailed to stay with them, something I do not wish to do. I understand that several people have taken the Abbey National to the small claims court over this and that every case has been settled out of court. What I'm looking for is advice on how to do this, i.e. what legal arguments can I use in my claim.

These clauses can fall foul of the Unfair Terms in Contracts Regulations. The lender must be able to explain how much the early redemption costs them - and the penalty must be proportionate.

First, complain to the lender - ask them to justify the penalty in these terms. If you are not satisfied, request a deadlock letter and complain to the Ombudsman.

Finally, post a note of your experiences here, to help others.

Mortgage penalties - a cautionary tale

A visitor writes:

I re mortgaged my property with the Abbey National back in 1998 at a fixed rate of 7.95%. I did not read the small print, but since interest rates are currently much lower, I contacted ANat regarding getting a better rate of Interest, which I have been told I am unable to do until August 2005. Due to a 7 year penalty clause, my redemption figure is just over £5K. Although they went on the lines of, I should have read the small print. Back when I orginally took out my Mortgage, an Advisor from the NatWest came round, went through everything with me, things were clear and sure. With Abbey Nat, I took my mortgage out over the phone and little advice concerning the negative side of the contract was ever made clear. I have tried to speak to Abbey National and have said I am prepared to keep my business with them, if the provide me with a better rate of interest. They have said, as long as I pay the redemption fee back to them I could change my interest rate. This would be worth considering if I was going to stay in the property until the mortgage period had ended, but it is highly unlikely I will. So I currently pay £390.00 every month on a mortgage with a balance of £39k. Great, as Abbey National would say, "because life's complicated enough", you're damn right it is having a mortgage with them!