To have been this stupid about my mortgage? Huge financial loss

[highlandtime]

Hello

I bought a house and took out a mortgage in 2006 when I was very young, and didn't really understand much about mortgages. The bank offered me a rate of 4.8% which was fairly typical at that time, and 3 years later when my deal expired I called the bank and asked what my options were. They said that when my deal ended I would automatically go onto the standard variable rate, which was only marginally higher than the rate I was on, and represented an increase of £7.65 to my monthly repayments. I understood that was a good deal, and was not told about any other options that might be available to me. I decided to let my deal expire and then go onto the SVR.

I had no idea that I could have chosen from the other deals they had on offer, I don't know why other than I was young and green and naive. During my phone call, the bank the didn't mention this either. I came away with the understanding the SVR was my best option and I was lucky it was only a small increase. I also thought that I now was stuck on the SVR unless I wanted to remortgage with another bank.

Today I was prompted to phone the bank following a chat I was having about mortgages with a friend. I asked for a 'rate change' and opted for a deal which brings my rate down from nearly 5% to just over 1% !!!!! My monthly repayment has changed from £1200 to £200. Great! But I cannot reconcile how I have been paying an interest rate of nearly 5% for the past 8 years.

I will call the bank and ask for the 2009 phone call to be reviewed (I took quite extensive notes and have kept them). I will also tell them I think I was misled. Does anyone have any advice or been through a similar experience and was anyone successful in recouping anything?

Thank you

Yes, I really don't think 'banks' (whomever they may be individually) are losing much sleep. Mortgages are the majority of banking profit these days...

You might have more of a chance with a complaint if you think you weren’t explained an interest only mortgage properly. There is procedure to follow with the Financial Ombudsman who may ask the Bank to make redress.

www.financial-ombudsman.org.uk/consumer/complaints.htm

Then OP needs to make sure she doesn't overpay over the 10% allowance or she will be charged ERC.

Lucky they're able to locate a call so quickly from over 6 years ago when you presumably can't tell them the time or date you called or the agent name. Wonder what platform they're using sounds a lot more efficient than the bank I work for.

I might have missed it, but how does the OP plan on paying back the capital in x amount of years? I thought if you have an interest only mortgage then the lenders want to see you have made sound savings and investments to pay them back the capital at the end of the term, they wouldn't just hope and pray that the value of the property has risen would they? That would be madness..

Teddy - if you do a rate switch with your current lender you don't have to do anything. They assume everything's staying the same and apply tbe new rate.

It would be classed as new application if OP wanted to change the term or change from IO to c&r.

When OP took out the mortgage it was enough to say your repayment vehicle would be 'sale of property'.

I was able to give them the date of the call and rough time as I have kept the notes I made during the call in my mortgage file.

We took out our mortgage in 2012 with a 10% deposit of £18,000. Our rate was just under 4% we at £850 a month remortgaged two years later at 1.9% later for £544 a month. Its so important to keep your eye on these things.

There’s a lot of confusion on this thread,
Mostly around overpaying!
When you overpay on either an interest only mortgage or a capital repayment mortgage, it directly reduces the capital.

@Mummyoflittledragon

Your IFA is wrong. You can absolutely still get an interest only mortgage on a property that you live in, as long as you have a repayment vehicle in place.

See if you can get the call listened to just in case the wording clearly gave you the impression that this was the best and/or only option available to you. If this has happened you should complain and if you can prove it then the product was miss sold to you. Also if this is you're family home, try to get a repayment mortgage instead of interest only. Google the best mortgage rates and visit at least 3 high street banks for their best rates. If you can pay more to shorten the life of the mortgage it will be well worth it. Good luck.

So many self rigorous angry people on here. Probably projecting. And probably angry with themselves that they didn't buy property in londonnin 2006!

*self righteous obvs

“OP - I take a different view to other posters. Financial institutions then - as now - are under an obligation to treat customers fairly and to explain things clearly to customers.

I see no downside to you writing a letter addressed to the Complaints Dept of your Bank. Set out your complaint and the redress you are seeking - ie presumably the difference in what you would have been paying had you been on a 'better' deal other than a SVR.

The Bank will acknowledge your complaint within 5 days and send you their complaint handling procedure. You should get a final determination within 4 weeks, maximum 8 weeks.

If you don't like their response, you can refer free of charge to the Financial Ombudsman Service. They will review your complaint and the Bank's response and make a final determination.

You have nothing to lose by proceeding this way.”

This is the correct advice. I worked in financial services compliance for many years and banks have an obligation to treat customers fairly and give appropriate and fair advice. They can’t just tell you about the SVR if they had other, better rates on offer if those products would have been suitable for your needs. Put in a complaint.

OP, take on board some of the comments here, but do your own research. A good start is the moneysavingexpert site.

I used to use fool.co.uk back when I got my mortgage, and through it and L and C (from the Fool's recommendation) managed to secure a lovely mortgage rate of 0.19% above base rate for the lifetime of my mortgage. Base rate is 0.25% or something, so I've been paying around 0.44% interest for the past 7 years or so. It really is worth getting yourself educated.

The fool website seems difficult to navigate these days but it might just be me not having the patience to look at their new format.

If you're not happy with the bank's response contact the FCA to review. Due to the masses of regulation and about treating customer fairly banks have to investigate. The drop from £1200 to £200 not unusual, we had a variable rate mortgage in 2008 where we paid approx £1500, this dropped to approx £200 when interest rates dropped to 0.5%.

IO mortgages can be great. If you are lucky enough to have one and have enough financial discipline then it's worth keeping hold of as they are so difficult to get now. We have only ever had IO but used to have endowments as the repayment vehicle. When it became obvious there would be a shortfall we cashed them in (after taking financial advice as there is a different approach for unit linked and with profits) and took out an new IO offset mortgage. Every month the amount we didn't have to pay into the endowment plus any other savings we could make were available to reduce the capital balance. We saw some big reductions in the amount outstanding over the next couple of years.

However, when we decided to do an extension, we were able to draw this money back down to pay for it, thus increasing the mortgage again without having to go through any affordability checks.

Our mortgage is now fully offset but not technically repaid as we value having the ability to borrow money at a very low interest rate over a reasonably long term.

The added bonus would is of course that if you can't afford to reduce the capital balance in any one month you don't have to - all you will be charged is the interest - so there is much more flexibility.

Obviously though, you will need to make up for any shortfalls at a later date. Can't recommend IO offset mortgages enough!

SVR likely was the best option in 2009. Stopped being so by about 2013.

I work for a large UK bank. We only keep phone records for 12 months so cannot listen to calls older than 12 months.
It will all depend on whether during your call you opted for the advice or non advice.

But you haven’t got any equity. You don’t own the house. When it comes to paying back the original capital you’ll have to sell the house to fund it. Then you’ll have to downsize. Unless you’re also paying into an endowment or savings?

I am utterly, utterly gobsmacked that despite feeling bamboozled by this bank and despite not really understanding how it all works, you've signed up to a new mortgage deal with them without seeking any independent advice! It would have been the perfect time to switch to a repayment mortgage, for starters.

If you're not going to pay for help at least get very familiar with MSE:
www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator#

You say you were young and naive , yet you took copious notes from the phone call and kept them for 9 years?
That suggests that you realised what you were doing was significant or you wouldn’t have made copious notes- difficult when on the phone- or kept them for nearly a decade?
It sounds to me like you didn’t make enough effort to understand how mortgages work. I sympathise as it is complicated. But, as everyone says, a mortgage is the biggest financial decision most people make in their lifetime so you have to make the effort to research and understand what you’re getting into.

But you haven’t got any equity
What do you think equity is? Equity is the difference between the value of the house and the amount of mortgage outstanding so of course OP has equity, same as anyone else who owns a house with a mortgage. A house in London in 2006 would be worth at least double now.

You’ve got to take the responsibility here. Banks aren’t going to hold your hand. Would you go with a utility or car insurance without comparing first? No, same applies to mortgages. Do your own research.

IO mortgages can be ok, but only if you are financially disciplined and really understand what you are doing!
(If I had to choose between an IO mortgage and renting for decades, I would probably choose the IO mortgage).

OP should have equity, but only because the value of her property has increased. She could use that equity to get a lower interest repayment mortgage - the LTV will be lower than when she first bought.

I think you've been very lucky op - firstly that the financial mistake you have made has cost you a lot of money, but not the roof over your head. Many mistakes made through naivety and lack of research have far worse consequences.
Secondly that the increase in value of your house has given you options you wouldn't have otherwise.
However things go with the bank, pay for financial advice and listen to it.

ceeveebee you only own the equity if you own the house. The Op does not own the house therefore any equity in it is not hers.