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



## Brendan Burgess (31 Jul 2012)

[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]


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## Brendan Burgess (14 Sep 2012)

[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.
> ...


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## dereko1969 (14 Sep 2012)

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.


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## Brendan Burgess (17 Sep 2012)

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.


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## Brendan Burgess (17 Sep 2012)

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]
> ...


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## Brendan Burgess (20 Sep 2012)

*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
> 
> ...


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]
> ...


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]


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.


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## Brendan Burgess (20 Sep 2012)

The Ombudsman's decision - *I have highlighted some parts in bold.*



> [FONT=&quot]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.  [/FONT][FONT=&quot]It  [/FONT][FONT=&quot]includes  the  provision   of personalised information at  a  pre-contractual           stage   to  be   presented       in  a   _'European   Standardised Information   Sheet '. _[/FONT][FONT=&quot]It  [/FONT][FONT=&quot]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. '_[/FONT]
> 
> [FONT=&quot]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[/FONT] [FONT=&quot]€1,200  which  is the amount  that equates to interest  only repayments.[/FONT]
> 
> ...


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## Brendan Burgess (20 Sep 2012)

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. _


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## jprender (20 Sep 2012)

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.


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## Bronte (21 Sep 2012)

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.


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## jprender (21 Sep 2012)

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


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## Bronte (21 Sep 2012)

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.


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


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## jprender (21 Sep 2012)

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.


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