Mortgages explained

Interest-only mortgages

The monthly payments with interest-only mortgages only pay off the mortgage interest, not the amount you borrowed itself. It provides a cheaper repayment option compared to alternative mortgage types but you are not paying back any of the debt, just the interest on the mortgage – hence the name ‘interest-only mortgage’!

Interest-only mortgages were popular during the 1980s and 1990s when they were normally taken out with a with-profits endowment policy. This led to a massive mis-selling scandal, as many customers were promised that the endowment policy would not only pay off their mortgage, but also provide a lump sum.

In some parts of the UK where house prices are still significantly rising, an interest-only mortgage provides a lower repayment option compared to a capital repayment mortgage (and may be cheaper than renting a property). The danger is if house prices fall, then home owners could be left in a state of negative equity where they owe more than the value of the house. This is a key mis-selling point as home owners often think their house will go up in value. In this situation they can find themselves trapped, unable to escape their mortgage (a prisoner).

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Mortgage mis-selling

Mortgage mis-selling has occurred over a range of scenarios and we will assess your case on an individual basis.

Lenders and brokers must have ensured that they checked your mortgage was affordable for the entire length of the mortgage term and fully explained the differences between interest-only and ‘capital repayment’, as well as the fact that if you did take out an interest-only mortgage, then you may have to switch to a capital repayment mortgage in the future with this being a more expensive option in the long term.

In summary, your mortgage may have been mis-sold if you were advised:

  • To take a mortgage product not suitable for your needs (or your retirement date is before the mortgage ends)
  • To take a mortgage product on the basis that the Broker would receive a larger commission, or you’ve not been told the amount of commission the broker was receiving
  • To consolidate other debts such as loans or credit cards by re-mortgaging
  • To switch mortgage lenders without being told about any fees and penalties
What are mortgage prisoners?

You may have heard the term ‘mortgage prisoners’ before but be unsure what this means or whether your situation defines you as a mortgage prisoner. Mortgage prisoners are people who are in a situation where they have been told by their mortgage provider that they can’t re-mortgage on the grounds of affordability, even though they are keeping up with their repayments and want to switch to a CHEAPER rate.

According to the FCA, there are three main categories of mortgage prisoners:

  1. Mortgage prisoners who are with unregulated/unauthorised lenders. This makes it harder for the FCA to help mortgage prisoners who have mortgages with such lenders.
  2. Mortgage prisoners with inactive lenders. These are mortgage providers who no longer offer new mortgage products to new or existing customers. Therefore, mortgage prisoners who can’t pass affordability checks with other providers can’t move to another provider for a better deal and are stuck on their current deal.
  3. Mortgage prisoners who have a mortgage with an FCA-regulated company who are stuck on a rate after their initial incentive or fixed-rate period has ended but can’t move to a better deal due to stricter affordability checks. These lenders have pledged to help customers stuck in this situation – however it is unlikely to help customers who are:
  • In arrears
  • Have very high loan-to-value mortgages
  • Have considerable debts.
  • Have mortgages in negative equity

Get in touch to see if we can build a case that your mortgage was mis-sold.

Have you been over-charged your mortgage?

You may have made overpayments on your mortgage due to miscalculations by your mortgage provider, and therefore be entitled to a refund worth thousands of pounds! Some lenders misallocated payments and applied incorrect interest rates. This may apply to you if:

  • You have ever fallen into arrears with your mortgage
  • You have been charged excessive fees (admin and arrear fees)
  • Your mortgage provider paid your broker a fee which was added to your mortgage
  • You took a payment holiday and your bank didn’t reconcile payments received in a timely manner