Woolwhich Changing the Rules

gbillett

I have had a tracker repayment mortgage with the Woolwhich ( now Barclays ) for 3 years and my repayment rate has always been set annually in relation to prevailing base rates. I currently enjoy a very advantageous interest rate of 0.65%.

I have just received my annual mortgage Review and it states that in future my mortgage interest rate and repayment rate will change 1 month after a change in Bank base Rates ( rather than the yearly arrangement previously).

Can the Woolwhich make such a fundamental change to my mortgage without either discussion or agreement with me? What options have I got to contest this?

Thanks
Geoff

Thrugelmir

Your monthly repayment would have been set once a year. To adjust the repayment to reflect the amount required to repay the mortgage over the remaining term of the mortgage.

However the underlying interest charged would be calculated on prevailing rates during the year.

With rates so low and ultimately heading one way only. Adjusting monthly repayments as they increase throughout the year makes perfect sense. Rather than adjusting at a much later date causing repayments to jump suddenly and without warning.

gbillett

Thanks. My situation is that I work for the Health Service and can retire in approx 15 months when I will pay off my whole mortgage as well as a mortgage reserve account linked with it. Obviously if my repayment rate was projected on the previous arrangement, my rate would remain considerably lower than that if interest rates rose incrementally over the next year and I would repay less money.

If there is nothing I can do about it then so be it, but I am surprised that such fundemental terms and conditions can be changed so arbitrarily. I am sure that if interest rates were higher and projected to make a downward trajectory my bank would not consider my needs and reduce interest rates as quickly as they obviously intend increasing them. I had assumed that the change in this arrangement was not so much for my benefit but for the bank's benefit in that interest rates would rise ( which is the only way they are heading agreed) and they would receive larger repayments from me.

Am I being less than generous?

opinions4u

The mortgage rate will vary as and when the BofE rate changes (or the first of the month following in some cases). Just because they don't change your payments immediately doesn't meen that they don't change the mortgage rate.

Your monthly payment will, at the moment, only vary annually. In future it will vary in line with the interest rates.

In other words, under the old arrangement, your interest rate would increase but the payments wouldn't catch up until a year later - so your increase in payment in 12 months time would be higher than if they'd adjusted your payments straight away because your debt won't have decreased as quickly as would otherwise have been the case.

(By the way, don't automatically repay the mortgage when you retire. If savings rates are high compared to the mortgage rate you could make a small profit by not paying off debt).

blueberrypie

gbillett wrote: »

Thanks. My situation is that I work for the Health Service and can retire in approx 15 months when I will pay off my whole mortgage as well as a mortgage reserve account linked with it. Obviously if my repayment rate was projected on the previous arrangement, my rate would remain considerably lower than that if interest rates rose incrementally over the next year and I would repay less money.

If there is nothing I can do about it then so be it, but I am surprised that such fundemental terms and conditions can be changed so arbitrarily. I am sure that if interest rates were higher and projected to make a downward trajectory my bank would not consider my needs and reduce interest rates as quickly as they obviously intend increasing them. I had assumed that the change in this arrangement was not so much for my benefit but for the bank's benefit in that interest rates would rise ( which is the only way they are heading agreed) and they would receive larger repayments from me.

Am I being less than generous?

I think you've misunderstood how it has worked in the past. Although your payments have been adjusted on an annual basis, your interest rate has always been adjusted a month after a change in base-rate. Each year, Woolwich calculate how much you owe, and set your payments accordingly.

The only thing that is changing here is that your *payments* will be adjusted monthly, rather than annually. The disadvantage of this to the borrower is that your payments could change more frequently, which could perhaps make budgeting a bit more complicated. But there is an advantage to the borrower too, because if rates do rise, your mortgage isn't accumulating interest at the higher rate while your payments remain as if the rate was lower - which is what happened previously, and which would cost you more in the long run.

jamesperrett

They're going back to the way that Barclays tracker mortgages used to work. I was surprised when I switched to a Woolwich mortgage that they didn't work this way so the changes are now just bringing things into line with the rest of the Barclays group.

James.

Thrugelmir

jamesperrett wrote: »

They're going back to the way that Barclays tracker mortgages used to work. I was surprised when I switched to a Woolwich mortgage that they didn't work this way so the changes are now just bringing things into line with the rest of the Barclays group.

James.

Most likely that Woolwich's computer system couldn't cope with the changes previously. Historically once a year changes were the norm for building societies.

gbillett

Thank you for all replies. i have probably misunderstood some of how the system functions and I am grateful for the explanations. its probably not so bad as interest rate hikes will probably be gradual and not dramatic. i do budget year to year and knowing my mortgage payment has been fixed for a year had been helpful. I guess I am mistrustful of banks and see changes they unilaterally introduce to suit them and not customers and often feel powerless in transactions with them.

getmore4less

gbillett wrote: »

Thank you for all replies. i have probably misunderstood some of how the system functions and I am grateful for the explanations. its probably not so bad as interest rate hikes will probably be gradual and not dramatic. i do budget year to year and knowing my mortgage payment has been fixed for a year had been helpful. I guess I am mistrustful of banks and see changes they unilaterally introduce to suit them and not customers and often feel powerless in transactions with them.

The way the system worked as rates dropped people ended up overpaying if they did not ask for a recalculation which was an option.

The bank now knows that rates(if they change) are going to go up and this will leave people underpaying so on the annual change the payment will be addjusted up for the rates and for the underpayments.

Now many people do not understand how their mortgages work and will complain, this will cause a lot of work for the bank and there is the risk that the bank will not win a case and have to take a loss*, I think that having a payment system that can leave a borrower underpaying would not be look on favourably.

By making this change now they preempt the issue that will happen when/if rates rise reducing the banks risks, also borrowers will not get big shocks if there are a few rises between financial years.

So good for both sides, for those that never dropped their payments(eg: offsets) as rates dropped will not have a problem anyway till rates go a lot higher.


* Allthough different circumstances Clydesdale have had to take the losses for a mistake because they handled the notification of the mistake very badly