Case study Capital shortfall on mortgage because of Bank error

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Lorry

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Hello
I have an investment mortgage on a property that I took out 10 years ago. Despite the decline in property prices I continue to meet my mortgage repayments each month. In recent years I have discussed this mortgage with the Bank on numerous occasions and I have emails from 2 representatives in 2008 and 2009 confirming that the mortgage was interest only until expiry. Last year I had a meeting with the Bank to discuss the mortgage and the interest rate was reduced by 0.5%. I recently got a letter from the Bank out of the blue stating that due to a systems error the mortgage should have converted to capital and interest 5 years ago and as a result your mortgage repayments will increase from 800 to 1700 from next month. I lodged a complaint stating that I had adhered to the contract, signed up to pay for DD and relied on the Bank to provide accurate information as I have mislaid my mortgage documentation. I sent a complaint letter requesting further information and the capital shortfall is around 50k. I dont see why I should have to pay for the Bank's error. Has anyone been in this position? Is my only option the FSO? Can someone recommend a good solicitor? I have submitted a financial statement to the Bank so they know I cannot afford to repay 1700 a month. Any advise would be welcome.
 
Hi Lorry
I am going to assume that your mortgage is with Ulster bank as there have been a number of these instances recently, they will however give you a number of options on the repayment of the o/s capital amount including extension of term, interest free loan etc etc. In relation to the discussion with their reps previously the only item that matters here is the original loan offer and the terms contained there, as it is these that will in effect be the correct position I hope this helps but if you wish to PM me the details i will be more than happy to look over it Padraic
 
First port of call is to immediately request a copy of the original Loan Offer. Only then will you know the exact terms you signed up to. UB are slow in providing information, but your are entitled to retain your existing repayment schedule pending clarification from the Bank. Then you can enter discussions, but given the Banks error you will be entitled to a deal that is within your ability to repay.
 
In recent years I have discussed this mortgage with the Bank on numerous occasions and I have emails from 2 representatives in 2008 and 2009 confirming that the mortgage was interest only until expiry.
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I don't understand this bit....
 
The details provided by the Bank confirmed that the expiry date for the interest only period was 2029.
 
Hi Lorry

I sent a complaint letter requesting further information and the capital shortfall is around 50k.
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What does this mean?

You borrowed, say €200k and you thought and the bank thought, that the mortgage was interest only. You were happy with this. The bank was happy with this.

If you have paid the interest in full, the amount you owe today is still €200k - there is no capital shortfall.

If you had paid capital and interest, the mortgage today might be €150k. But that does not mean that there is a capital shortfall. It just means that you did not pay any capital.

You have not been overcharged or undercharged.

Assuming that you cannot or don't want to pay €1,700 next month, you should write to them insisting that they make no change until this is resolved. If they charge you €1,700 and you can't pay it, your ICB record will be damaged.

So the first thing to do is to make sure that they extend the interest only by a further 6 months while you negotiate an agreement.

The second thing is to get the contract and see what has been agreed.

At that stage, the bank will do some sort of rescheduling with you, but they do have a right to switch it to interest and capital.

What rate are you being charged? If it's a cheap tracker, you have gained enormously from their mistake.

Brendan
 
The mortgage was not with Ulster Bank however I was aware of the problems Ulster bank had and the 4 solutions they offered mortgage holders. In the UK a similar problem arose with Clydesdale Bank and the FCA ruled in September 2013 that consumers should be able to rely on the information provided by Banks and Banks must treat customers fairly. The FCA fined Clydesdale Bank and Clydesdale Bank wrote off the capital shortfall for consumers. While I know we dont follow the FCA surely they are setting a European Precedent. Arent we all Europeans? Why should UK consumers be better protected and get more compensation and in Ireland we just give 4 options to consumers who are burdened with a capital shortfall because of the Banks errors!
 
What is this capital shortfall?? In line with the commentary of BB above, I don't understand how you can have any capital shortfall. If you are paying interest only, you still owe the amount you borrowed. That will not change & there is no reason as to why it should.
 
On the basis of the information provided we budgeted on the assumption that the repayments would remain interest only and the plan was that over 20 years inflation coupled with house price rises would erode the real value of the debt over time. In the last 5 years we should have been paying capital and interest but we have only being paying interest so now while we signed a contract to pay interest only for 5 years and the capital over the remaining 20 years because of their error they expect us to pay the capital over 20 years. I did not sign up for this. Also its not a cheap tracker! Also I would have saved 4k in interest if the capital had been paid off in accordance with the loan agreement. I signed a direct debit giving the Bank authorisation to debit my account as the repayments fell through. It is imperative that the Bank has a onus to supply correct and accurate information so people can budget correctly. When I get my ESB bill I dont check the terms and conditions of the contract i trust the provider to have the systems in place to bill me correctly. similarly i trusted the Bank to debit my account as it falls due!
 
Whatever you might think, the defining document here is the Offer Letter you signed with the Bank. It would be not unknown but very unusual for the Bank to grant you an IO mortgage over the 20 year term. If you signed the bank L/O without reading it, then you cannot use this as an excuse not to be bound by the T&C's. Subsequent emails from the Bank will give you some room for negotiation, but would not be deemed to negate the original contract.
 
The real question here is why the payment of capital and interest didnt occur when it should have I agree with BB in terms of the amount of capital outstanding is the same as it was at the beginning but will now cost you more as you have to repay the amount over a shorter term. The loan offer is the first port of call followed by the 'mistake on the lenders part of not moving the account to cap and int when it should have happened. Also some lenders did do interest only for the full term of the loan
Padraic
 
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