The biggest mortgage scandal-banks putting aside your overpayment without capitalising it

[Bobbobrichard]

I'm shocked to find out on my re-mortgaging that my bank has not used my overpayments that I accumulated over the years but allowed them to accumulate in a pot, waiting for me to call to capitalise them.

When I called they told me that some can have 10s of thousands in their account, this money was not used to pay mortgage (they picture a pretty picture saying it reduces the mortgage terms but that does not really reduce the amount of money you'll be paying in total for as long as you re-mortgage).

The amount on that pot is also not visible to you on the app, so people would just pay into their account blindly without seeing their mortgage going down. It is a financial mind twister that most people would not understand.

Please people who have financial background explain. Also, lawyers, it sounds like they're using this information barrier and professional barrier to create difficulties for you to make your money work for you.

Had my overpayment been capitalised earlier, my mortgage monthly payment would have gone down significantly, and my re-mortgage monthly contract payment would not have been as high. If feels like living in a rental property again! As the interests are calculated by days, every day I'm paying the bank same rent to live in my property, even that my borrowing has got less and less! Does that make sense?

I made a complaint but got rejected. AIBU?

With halifax, i can just log on on and see online statement showing the overpayment reducing the balance each month.

With Barclays, under £800 over-payment will lead to a reduction in monthly payment unless i call in and ask for it to reduce my term. Over £800 it will be treated as reducing my term. Personally I want the term reduced.

I’m with RBS, I can make either an ad hoc overpayment or overpay by a specific amount every month on the banking app.

When I set a regular overpayment it ask of if I want to use it to reduce the term/reduce my monthly payment and it does that every month. If I make a one off overpayment it asks the same and I can then see the overpayment come off the balance and they send me a message to tell me how much the term is reduced by.

It’s really easy to manage and the information is at my fingertips.

Did you not get a statement at least once a year?
Where did you think the money was going if it didn't reduce the balance?

I can understand you maybe not noticing once but overtime, if you've overpaid say £20k did you not wonder why the balance hadn't decreased enough?

@Bobbobrichard "I guess I did not know that I needed to do that"

i'm not sure I would've known either but I was using a very good financial website at the time, sadly defunct now. It had really clear explanations of all financial products and the various things that could happen with them - maybe Martin Lewis has a section on this? I don't know.

I do think that the banks should give you a clear set of information on what happens with overpayment. I think that is a totally legitimate expectation from a bank.

You say that you've complained. I actually wonder if it's worth complaining again.

The difficulty is going to be proving that you've actually lost anything - have you? So if you were expecting your payments to reduce, then obviously you would be expecting your interest to reduce as well.

Can you calculate how much you have paid as a result of the error?

Can you confirm that it's not written down anywhere, on or off-line, that you need to specify that you are paying money towards the mortgage lump sum?

If the answer to both of those questions is yes, I would try another complaint.

If it's any consolation, I have had two issues with bank customer services in the last week. Now that everything is online, they don't want to do anything.

The first time I had to call them because there was a problem with something online, and I realised too late that the action I was asked to take, quite fiddly, I was likely asked because the person on the phone couldn't be bothered to do it themselves. I think they actually could've done it. I was very puzzled by their explanation at the time but I just accepted it because it solved the problem I was having.

it was only when I was physically in the bank with my mum today, trying to sort out something that used to take 10 minutes max - and it took them nearly an hour - that I realised it's probably something to do with lack of training for bank staff or just lack of motivation. So many people don't seem to actually do their job now.

The lady we saw today seemed to be completely thrown by doing a really basic banking transaction.

sorry, I'm waffling. Basically, I think it's quite possible that you have spoken to people who don't understand the situation. You can't rely on banks - or anyone really - to actually know what's going on these days

It's one of my biggest frustrations both at work and in general life admin.

So if you can find something in writing that backs up what you're saying, maybe make another complaint and you can get your interest adjusted in whatever way is relevant to your lump sum overpayment.

I hope that makes sense. I'm old enough to remember when banking was really easy! Actually, it was a lot easier even 10 years ago.

Why on earth aren’t you warning others in a meaningful / actionable way by NAMING THE BANK?

Take your complaint to the ombudsman but at least use your tale of woe to help others!

The key question to ask your bank is whether your overpayments are avoiding interest. Assuming they are (as is the case with my overpayments), it’s not a scandal. If they’re putting your overpayments in a separate pot and still charging you interest on it then that would be a huge scandal.

I'm with Barclays! I don't want to do that before I get a clear understanding of what exactly the hell is going on. When I asked chatgpt I was told most banks treat overpayments in the two ways that my bank does, so that was not the issue. But what I struggle with was the zero transparency in terms of where my overpayment actually went.
I did wonder with so much overpayment why my balance appeared untouched on the thousand digit! It felt like paying rent!
However, above there was someone using Barclay and did not have the same experience! I'm really puzzled!

My problem was with Barclays! With overpayment under three times of the contractual payment they use it to reduce the term, and with overpayments above three times of the contractual payment they use it to reduce the monthly payment. I don't think my overpayment money was used for either of them because they reduced my monthly payment after I called in to "capitalise" that money.?! So I suppose it was not used before I called them!

Did you check you paperwork. Because I am with Barclays and it does explain overpayments. I had email with link to extra info and it is on their website that it's stored separately (but lowers the ampunt of interest paid), how to do it and how it can be used.
I am confused what the problem here is.

So just got off the phone with my broker. He said only Barclay's do that, he had three customers who he mortgaged for recently, and as a professional broker, he could not see the reserve fund (the pot where the non-contractual overpayment goes) either, he only saw it after the mortgage offer was issued, which then came as a shock to him.
He complained this to Barclays himself.
As a customer, I could not see that reserve fund on my app. And I contacted Barclays after my broker showed me the fund, and I told them this money should be used to reduce my capital, then they calculated and my monthly payment was reduced by 1/8.
Imagine there are people who never knew such a reserve fund and would have presumed when they overpaid the mortgage the money was used to pay their mortgage, when all it did was to sitting in a reserve fund.
Also we discussed whether it is better to use the overpayment on paying the capital or reducing the term, the answer is always better used paying the capital, because you want to pay least interest apart from the capital, if you use the money to pay the capital, then all your overpayment goes to the capital, but if you use the money to reduce the term, then part of the money goes to the capital, part goes to the interest, so you're paying extra interests and less capital with the same amount of money, that's in-efficient use of your money.

My broker said what they do is "disgusting", Barclay has the best rate but I suspect they use the rate to attract customers but then when the customer overpay, they don't let you use your overpayment and don't show you that you have a reserved balance from the overpayment, and this money is invisible for you throughout, they trick you to reduce the term and pay more interest to them than what it could have done otherwise.
I'm going to escalate my complaint to financial ombudsman and I'm also writing it in as many forums as possible, and make the media know about what Barclay is doing!

The overpayment kept in a separate pot was not used to pay the capital (which doesn't generate mortgage interest), unless you call them to specify that.
So yes, they keep the money in the pot and you're still paying interest on that amount, and you're using that money to pay that interest, so effectively you're paying less capital back than you could have.
This is a scandal.

I had a mortgage with Barclays and the amount paid (and overpaid) every month came off the amount owing - I'd spoken to them that I wanted the monthly required payment to stay the same. If we overpaid less than 3 times the contracted amount, it didn't count towards the 10% we were allowed to overpay each year. We could pay off as much as we wanted in the last month of a fixed rate, taking the annual overpayment to over 10%, without penalty. I had to keep a very close eye on the overpayment when we got close to paying it off - in fact I didn't go for a fixed rate for the last year.

I kept a spreadsheet with the payments on running for quite a while! When we paid off the mortgage, we still had 3 years of the term to run but it didn't matter, it was just paid off. We didn't pay any more interest than we should have.

My overpayments are kept in a separate pot. I don’t have an app but I can see them online in my account. My overpayments absolutely reduce the interest I pay and over time have reduced my term from 37 years to 23

So if my mortgage is £100k and I’ve got a separate pot of £20k I’m only paying interest on £80k

when I remortgage with the same company I have to 'withdraw’ my separate pot while they recalculate my new mortgage and then use my pot to pay off my capital. This dramatically reduces my monthly payments on the new mortgage and less capital so I have to increase my overpayment if I want to continue paying the same amount each month going forward

So if my mortgage is £100k and I’ve got a separate pot of £20k I’m only paying interest on £80k

should have said so more of my usual monthly payment is going against paying off capital not interest. This is what reduces the term

This truly is a scandal if its right.

Complain, complain, complain

Interesting. I’ve avoided overpayments on my mortgage because when I put it into the overpayment calculator (tends of thousands), it doesn’t affect my projected monthly payment at all.

So I’ve out the money into my pension instead.

And I’ve refused to call the Halifax cunts who gave me the mortgage.

If the money has been put in a pot and not paid off then your balance is still reduced at remortgage. So for example you owe £100k, at the end of your 2 year fixed rate you would owe £95k with no over payment, you would remortgage for £95k. If you have made £5k of over payments you would remortgage for £90k and either pay less per month or reduce your term and keep the payment the same. You will save on the interest paid over the full term either way

i don’t know what you mean by ‘doesn’t generate mortgage interest’. As posters have said, your interest is added to your net (ie total mortgage minus what’s in the overpayment pot) mortgage balance.

I’m with Barclays and your understanding is incorrect. I think your mortgage broker is confusing you and your complaint should be made against your broker not Barclays.

I made a £3000 overpayment to my Barclays mortgage last year and they treated it as a redemption (because it was over a certain percentage of my monthly payment) meaning my monthly payment would reduce. I rang them and asked them not to treat it as redemption because I want the term to reduce, not the monthly payment. They changed it so it’s treated like my normal monthly overpayments.

It is kind of held in a separate pot but only really for accounting purposes. My capital owing is reduced by those overpayments. I’m paying less interest as a result and I’ll pay the mortgage off quicker (despite the app not showing how much your term is reduced by, ultimately it will be reduced if you overpay in this way).

Treating it as redemption as you are now doing is perfectly fine it just works differently. You’re reducing your monthly payments but not your term. The end result is the same in terms of interest saved you’ll just end up paying it off longer.

I know what you're talking about, with Barclay it is very confusing, if I choose on the app that I'm making an overpayment of £3000 then it does treat it as a part redemption, which reduces your monthly payments.
But when I overpay without letting them know I'm making an overpayment, then this extra money is not capitalised until I ring them up, also I could not see how much these money add up to. I've accumulated thousands this way that is not visible through the app. I don't think they used it to reduce the terms, because when I called them up they used it for part redemption, they wouldn't have used the money twice.

How do you over pay your mortgage account without letting them know? Is it an offset mortgage? If yes the money in your current accounts will never be taken off the balance without you asking

i’ve never known of another sort of mortgage that will let you overpay the mortgage itself without agreeing with the provider

I think you should call them again and share your concerns and let them explain to you, as you’re getting overly worried thinking you’re being scammed when you’re not.

I've complained and now I'm asking them for a full statement on the historical overpayments and the balance, they're taking a while to get back to me.