High Court upholds Ombudsman ruling in favour of PTSB and interest only mortgages

[FONT=&quot]This is an extract from the High Court case issued today where Alan and Deirdre Grant appealed the decision of the Ombudsman in favour of PTSB


The applicants have three residential[/FONT] [FONT=&quot]investment mortgages with the respondent bank totalling €1.8m secured against four properties. The applicants' complaint concerned a letter which they received from the respondent informing them that the interest only period in respect of the three mortgaged loans which they had with the respondent was due to expire. The[/FONT]
[FONT=&quot]applicants were advised that they could either switch to capital and interest payments or they could extend the interest only period for a further twelve months at a variable rate of interest as opposed to the tracker rate which had been applied to their loan to date.[/FONT]

[FONT=&quot]6. On the 20[/FONT][FONT=&quot]th [/FONT][FONT=&quot]December, 2011 the Ombudsman issued his finding. The finding[/FONT] [FONT=&quot]may be summarised as follows:[/FONT]

[FONT=&quot](i) the respondent acted correctly and in accordance with the terms and conditions of the complainants' mortgage contracts when it decided to terminate the interest only periods;[/FONT]

[FONT=&quot](ii) the fact that the bank would be entitled to take this course of action[/FONT] [FONT=&quot]was adequately highlighted to the applicants at the point of sale via the actual loan offers;[/FONT]

[FONT=&quot](iii) in relation to the second and third grounds of complaint, the respondent did not act in breach of any duty by failing to accept the complainants' proposal to pay a sum almost €2,000 less per month in respect of their mortgage accounts than the repayment figure required by the complainants to meet their contractual obligation;[/FONT]

[FONT=&quot](iv) in respect of the fourth ground of complaint, by giving the complainants an option to remain on interest only repayments, the bank had actually demonstrated a marked willingness to assist the complainants with their financial situation.[/FONT]


[FONT=&quot] The grounds of their complaint against[/FONT] [FONT=&quot]the Ombudsman's decision may be summarised as follows:[/FONT]

[FONT=&quot](i) that the Ombudsman wrongly re-formulated the applicants' complaint in its summary as provided to the respondent;[/FONT]
[FONT=&quot](ii) the Ombudsman failed to direct an oral hearing;[/FONT]
[FONT=&quot](iii) the Ombudsman erred in his request for documents in the schedule of evidence;[/FONT][FONT=&quot]
(iv) the Ombudsman erred in his determination that the European[/FONT] [FONT=&quot]standardised information sheet did not form part of the terms and conditions of the applicants' loans .[/FONT]

[FONT=&quot]As observed above, what the applicants now claim is the gravamen [the essential element of a lawsuit - Brendan] of the complaint, i.e. that the respondent represented the loan would always remain interest only, was before the Ombudsman when he considered the complaint. This Court cannot interpose its view for that of the Ombudsman on this question as to whether the applicants were misled by misrepresentation. I can only do so if there was some form of irrationality in the sense of the non-existence of any evidence upon which his decision was based. In this case there is a surfeit of evidence to the effect that it was clear to anybody, layman or informed layman that the bank at every tum in the documents involved herein were explicitly retaining the right to transform the loan to an interest and capital one at their discretion. There is so much evidence of this that had the Ombudsman come to a different conclusion on this issue, he might well have been challenged on rationality grounds by the respondent.[/FONT]

[FONT=&quot]The[/FONT][FONT=&quot]applicants were[/FONT][FONT=&quot] being forced off a tracker mortgage:[/FONT]

[FONT=&quot]7.4 [/FONT][FONT=&quot]Two options were offered to the applicant; switch to capital plus interest repayment on the basis of a tracker mortgage or continue on interest only for twelve months with no guarantee of further extensions on a variable rate of 2. 8%. In doing so the bank was invoking condition A which reserved to itself the right to change the loan from interest only to interest and capital. The second option offered was considered by the Ombudsman to be an attempt to assist the applicants rather than a breach of duty. This is a judgment by the Ombudsman made in the exercise of his expertise and appears perfectly reasonable and grounded on uncontroverted facts. [/FONT][FONT=&quot]It [/FONT][FONT=&quot]is thus not the kind of decision with which this Court should interfere.[/FONT]

[FONT=&quot]7.6 For all the above reasons, I am not satisfied that the applicants have demonstrated any serious or significant error or series of errors and therefore I must affirm the finding of the Ombudsman.[/FONT]

[broken link removed]reports that this case may now be appealed to the Supreme Court.

One of the group, Alan Grant, head of mortgages at auctioneers Douglas Newman Good, recently took his own action against the bank to the Financial Services Ombudsman, which ruled in Permanent TSB’s favour.


Mr Grant challenged this in the High Court, which ruled in the ombudsman’s favour in July. He is now planning to appeal that to the Supreme Court. He will first have to seek the High Court’s leave to appeal the ruling, which he is expected to do after the new law term starts next month. If Mr Grant gets the go-ahead, it will be the first time the Supreme Court will have had the opportunity to rule on the controversial issue.


Mr Grant’s legal challenge is based on the procedures followed by the ombudsman in making its ruling. The court cannot rule on the ombudsman’s actual findings, but can scrutinise the procedures followed in making the decisions.


However, legal sources say that the overall group, represented by solicitor Walter Odlum, is challenging the basis of the bank’s claim that it is entitled to demand that they begin repaying the principal as well as the interest after a certain period of years elapse on the loans.

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Being a layman that seems a very damning verdict from the High Court, akin to "why did you bother bringing this to court"!

It seems odd, given a judgement like that why they'd appeal.

Hi derek

This is one of the test cases taken by Walter Odlum on behalf of around 100 clients. As such, it may be cost effective for them to appeal the decision to the Supreme Court.

I suspect, that if PTSB had lost the case, they would have appealed it as well.

PTSB has claimed that 10 such cases have been referred to the Ombudsman and that the Ombudsman has rejected all 10 of them.

[FONT=&quot]4. Are customers with interest-only Buy-to-Let tracker mortgages protected by the Consumer[/FONT][FONT=&quot][/FONT]
[FONT=&quot]Credit Act from having their terms and conditions changed?[/FONT][FONT=&quot][/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]No. The Bank’s ability to require the borrower to change from payments of interest only to repayments of principal and interest was clearly set out in the conditions within the borrower’s letter of loan approval. Apart from a few exceptions, no Buy-to-Let loan was advanced where the principal would only become payable at the end of the term. Accordingly, borrowers who were advanced tracker mortgages were not offered loans where payments would be of interest only. However, such loans did have an initial period where payments of interest only were acceptable to the Bank.[/FONT]

[FONT=&quot]
[/FONT] [FONT=&quot]T[/FONT][FONT=&quot]he Bank reserved the right to review the payments of interest only and to require repayments of principal and interest. This is particularly important in order to ensure that the customers are not subject to large capital payments at the end of their mortgage contract.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]It should be noted that a number of borrowers have challenged the Bank’s ability to review the interest only payment in the manner described above and over ten cases were referred by borrowers to the Financial Services Ombudsman’s Office (FSO). The FSO found in favour of the Bank in all such[/FONT]
[FONT=&quot]c[/FONT][FONT=&quot]ases. The decision of the FSO in one such case has been upheld by the High Court in a subsequent appeal proceeding. The decision of the High Court has been appealed by the Borrower to the Supreme Court.[/FONT]

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Ombudsman rejects complaint about PTSB switch from interest only to capital repayment

I have been sent one of the complaints by a complainant and reproduce the relevant bits here. I have scanned it, so there are some scanning errors. Note that this is not the case which was subject to the appeal to the High Court.

Letter of Approval

Loan Type: Endowment Residential Investment Property Loan
Term 20 years
Monthly instalment: €1,200

Important Information
Number of repayments: 20
Amount of each instalment: €1,200
Total repayable:

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Special Conditions

[FONT=&quot]J. PERMANENT TSB WILL ACCEPT MONTHLY REPAYMENTS, AS SET OUT IN THE LETTER OF APPROVAL, REPRESENTING REPAYMENT OF INTEREST ONLY... FOR THE FIRST THREE YEARS FROM THE DATE OF CHEQUE ISSUE OR SUCH OTHER PERIOD AS PERMANENT TSB MAY DECIDE.[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]PERMANENT TSB RESERVES THE RIGHT TO REVIEW THE DEFERrAL OF THE REPAYMENT OF PRINCIPAL AT ANY TIME DURING THE TERM OF THE LOAN, INCLUDING THe FIRST THREE YEARS of THE TERM AND MAY REQUIRE THE APPLICANT to CEASE· THE INTEREST ONLY REPAYMENT AND REQUIRE THE REPAYMENT OF PRINCIPAL AND INTEREsT AND THE APPLICANT WILL have to imMEDIATELY ARRANGE TO PAY THE REVISED MONTHLY REPAYMENT COMPRISING THE REPAYMENT OF PRINCIPAL AND INTEREST CALCULATED OVER THE REMAINING TERM SO THAT THE PRINCIPAL AND INTEREST WILL BE DISCHARGED WITHIN THE EXISTING TERM OF THE LOAN.[/FONT][FONT=&quot]
[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]K. THE PRINCIPAL AND INTEREST WILL, IN SUCH CIRCUMSTANCES, BE REPAID[/FONT][FONT=&quot] UNDER A PAYMENT SCHEDULE BASED ON THE AMOUNT OF THE LOAN OUTSTANDING AT THE DATE OF REVIEW, THE REMAINING TERM OF THE LOAN AND THE INTEREST[/FONT] [FONT=&quot]RATE APPLICABLE AT THAT TIME AND AS MAY BE VARIED FROM TIME TO TIME THEREAFTER. IF NO REVIEW IS MADE DURING THE TERM OF THE LOAN OR IF A REVIEVV OR REVIEWS ARE MADE WHICH RESULT IN THE CONTINUATION OF THE DEFERRAL OF PAYMENT OF PRINCIPAL FOR A FURTHER PERIOD OR PERIODS, A PAYMENT EQUAL TO THE PRINCIPAL (TOGETHER WITH ANY OTHER REPAYMENT DUE UNDER THE MORTGAGE) MUST BE PAID AT THE EXPIRY DATE OF THE TERM OR ON THE REDEMPTION DATE OF THE LOAN, IF EARLIER. [/FONT][FONT=&quot]
[/FONT]
[FONT=&quot] FOR ILLUSTRATION PURPOSES, THE MONTHLY REPAYMENTS OF PRINCIPAL AND INTEREST ON A EUR1 00,000.00[/FONT]
[FONT=&quot]FACILITY AT 4.8% APR OVER 10,15 OR 20 YEARS WOULD BE:
[/FONT]
[FONT=&quot]20 YEARS [/FONT][FONT=&quot]= [/FONT][FONT=&quot]EUR643,49,
[/FONT]
[FONT=&quot] 15 YEARS [/FONT][FONT=&quot]= [/FONT][FONT=&quot]EUR775.25 AND
[/FONT]
[FONT=&quot]10 YEARS [/FONT][FONT=&quot]= [/FONT][FONT=&quot]EUR1046.05[/FONT]

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European Standardised Information Sheet

[FONT=&quot]This is a home loan where interest only is paid for the duration of the term with the capital to be repaid in a Lump sum at the end of the term out of the proceeds of an endowment policy which are intended to equal or exceed the amount required to repay the loan.[/FONT]

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The amortisation sheet included with the ESIS showed interest payments being made every year, with the full capital still outstanding at the end of 20 years.

The Ombudsman's decision

There are two important points to note in relation to the European Standardised Information Sheet. The Irish Banking Federation (IBF), the representative body for the banking and financial services sector in Ireland, adopted the Voluntary Code of Conduct on Pre- Contractual Information for Home Loans. The aim of the Code is to ensure transparency of information and comparability between lenders. It includes the provision of personalised information at a pre-contractual stage to be presented in a 'European Standardised Information Sheet '. It is pre-contractual information provided to assist the consumer in making their decision. The European Standardised Information Sheet provided to the Complainant asserted that 'This document does not constitute a legally binding offer. '

This must be considered in the context of the overall documentation that constituted the loan agreement. The Bank provided the Complainant with a Letter of Approval as part of the correspondence. The Letter of Approval refers to the fact that the monthly repayment is€1,200 which is the amount that equates to interest only repayments.

The Complainant signed the 'Acceptance of Loan Offer' . When he signed this form he accepted the offer on the terms and conditions as set out in the 'Letter of Approval " 'the General Mortgage Loan Approval conditions' and 'the permanent tsb Mortgage Conditions '. The Complainant indicated that his solicitor explained the terms and conditions to him. His solicitor also witnesses his signature to this document. The agreement as referred to in the 'Acceptance of Loan Offer' form does not include the content of the European Standardised Information Sheet.[/FONT][/COLOR]

The agreement also included a number of Special Conditions. Special Condition J states that interest only repayments apply 'for the first three years from the date of cheque issue or such other period as permanent tsb may decide.' In this Special Condition the Bank reserved the right to review the deferral of the repayment of the principal at any time during the term of the loan. This Special Condition is clearly and unambiguously worded and when the loan agreement is read and considered in its entirety this Condition enables the Bank to restrict the extent of the interest only period as referred to in the European Standardised Information Sheet. Special Condition K states that if no review is made during the term of the loan, or the review has the effect of continuing the deferral period for the term of the loan, the principal must be paid at the expiry date of the loan. This Condition clearly envisages the representation made in the European Standardised Information Sheet to be a default position, which only applies in the absence of a review.

I also note that the European Standardised Information Sheet makes reference to the fact that ' ... capital to be repaid in a lump sum at the end of the term out of the proceeds of an endowment policy'. However there is no evidence that such a policy was ever established.

Therefore under the terms and conditions of the loan agreement the Bank is entitled to review the loan' and apply capital and interest repayments at any time during the loan agreement.

The evidence does not support the Complainant's claim and confirms that the Bank was only obliged to provide interest only repayments in the absence of a review. In seeking capital and interest payments during the term of the loan agreement the Bank is acting within the agreed terms and conditions and is not in breach of the loan contract.

The complaint isnot upheld.

How would I have judged this?

The Letter of Approval is only three pages. Terms J and K are fairly clear. They are not buried in the small print of a 24 page document.

The complainant based their claim on the ESIS. The Ombudsman has dismissed the ESIS completely. It is useful for other complainants to know this. The High Court upheld another Ombudsman's decision on this issue, that he was right to disregard the ESIS.

With that knowledge, I would have presented the case differently.

How was this loan marketed? If the advertising from PTSB advertised interest-only loans for 20 years and did not highlight that they had the right to switch to interest and capital at any time, I would be more supportive of the complaint.

The Loan Type is clearly described as "Endowment Residential Investment Property Loan". An endowment loan means interest-only. I would give a lot of weight to that title. If it was described as an annuity loan, the borrower would have no case.

What discussions did ptsb and the borrower have? If PTSB told them that it was interest-only, then that would be a factor.

But these three issues were not brought up, so I think that the Ombudsman made a correct decision, in this case.

Have PTSB put all decisions in relation to these buy-to-let mortgages on the long finger ?

My 5 year interest only period was to cease in August, but both the August and September payments have just been the interest amount.

Are they just waiting for the appeal to the higher court to make a ruling ?

Could they have forgotten about me ?

I think it is looking very likely that I will have to start paying the full whack sooner rather than later.

I imagine the main problem here is that when people bought these properties on interest only deals they didn't intend to keep them, they intended to flip them before the interest became capital and interest and didn't think of the long term consequences. And when negotiating with the banks dishing out the cash the bank staff told them this was a great idea. People didn't think of what if I cannot sell my property, and didn't ask the bank to take out the clause written in black and white that the bank can change to capital and interest. I don't doubt that many people were 'told' by a bank official that it will be no problem to entend the interest only and 'sure' don't worry about that clause.

That's the problem with being told one thing and signing another. Nearly impossible to prove that people were misled (if they were). Courts have to go by what's written in paper, unless their is contrary evidence.

Personally, I always planned on keeping the property. Not for one second did I think it was going to be interest only for 25 years, and tbh I find it pretty difficult to believe that anyone did.

With salaries having been reduced, it now becomes an affordability question though. Can't sell it due to negative equity, and finding an extra 1200 per month to meet the payments becomes a slight issue.

I can understand why people would try to find "an out", and this course of action is probably the best chance. Continue to pay interest only over the next 20 years, hope that the property will have appreciated enough to cover the outstanding amount, and then pay it off and get out relatively pain free, especially if rents have been covering the interest portion for the term of the loan.

I'm just not sure why the Bank are letting my interest only period go beyond the originally agreed 5 years. By extending the period like this, they are almost asking me to say I believed it was interest only for the whole term

jprender said:

With salaries having been reduced, it now becomes an affordability question though., and finding an extra 1200 per month to meet the payments becomes a slight issue.

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The affordability issue would never have arrisen if the rent had covered both capital and interest.

Ah yeah, of course. But it's because it doesn't cover it, you see the current scramble.

In my scenario, the rent was never going to cover the full payment.
I imagine it's the same in most/all of the cases.