HSBC Mortgage Overpayments Issue - Anyone else?

noodle

I've found a subtle way that HSBC are (in my view) overcharging me on early repayments - and am posting to see if anyone else is in the same situation and/or whether they've been able to do anything about it.

So.. (and apologies for length)

I'm on a 5yr fixed-rate deal - which, with the foresight of a dead stoat, I signed up for about eight seconds before interest rates went through the floor.. but, I digress.

The mortgage sum was £117k, the rate fixed from Jul 08 to Jun 13, and the monthly payment £735.

HSBC allow you to overpay 20% of the monthly amount without penalty. More than that, and you pay a penalty worth 1% of the overpaid amount per unexpired year of the fixed rate (i.e. if you overpay an additional £100, with 3 years of the fixed rate to go, the penalty is £3)

All fine so far?

After a few months of just paying the standard payment I started making 20% overpayments, and continued, with no issue, until Feb 2010.

In Feb 2010 I decided to start paying in excess of the allowed amount. I'd done the maths and decided that, even with the penalties, this was an effective use of cash. I overpaid by an additional £500 per month for a while, and then went crazy and started overpaying by more than double that.

Along the way, due to a windfall, I also made a one-off additional overpayment of £10,000.

I have no problem with overpayment penalties on that one-off payment, or on the monthly payments in excess of my allowed amount - but HSBC are charging me on EVERYTHING in excess of my standard monthly payment and, to boot, they have DECREASED my standard payment to around £700.

Quick example:

I think that I can make my standard payment of £735 + 20%, which equals £882 penalty free. If I repay (say) £1,500 in the month I should be charged penalties on £618.

However, HSBC say my standard payment is £700, and they are not giving me my 20% 'penalty free' overpayment - so, with a £1,500 payment, they charge me penalties on £800.

Thus, if there are 4 years left on the fixed rate - HSBC are charing me £32, but I think they should only charge me £25.


I struggled for a bit, because my calculations of what the penalties should have been were always out by a few quid - and eventually figured out what was going on. I then, of course, spoke to HSBC who, in part, explained why...

With regards to the recalculation of my standard payment - this is because of the one-off overpayment I made. HSBC have yet to explain why that meant they had to recalculate my standard payment - I didn't ask them to, I didn't want them to, and they never told me they were going to. It's just that if you make a payment additional to the monthly DD which they take, they recalculate the standard payment. (From what I can gather, if I'd simply increased my monthly DD by £10,000 in that month they would not have recalculated the standard payment).

The reason I'm getting charged on all my overpayment, even the 20% I'm allowed, is that 'this is how the system works'. I can have my 20%, but only if my normal mortgage payment is equal to the standard repayment plus 20%. I can still pay more, but I have to do separate payments for that.


This is all daft.

1. None of this is apparent from their own guidance, and was certainly not explained to me when I increased the payments beyond the 'allowed' amount. (I will confess, I've not yet red the actual small print of my agreement)
2. Whenever I have changed my monthly payment HSBC have insisted that I set it at a value - I can't have them set it at 'standard plus 20%' even if I want to, now.. given that they recalculate the standard payment if I make additional repayments... which they now say I need to do monthly... I think we can see where this is going.
3. Why on earth would they penalise customers who make payments via a single direct debit over and above those who make multiple payments adding up to the same amount?

I'm not sure whether to put this down to poor system design and poor communication, or a deliberate attempt to profit from the fact that very few people are boring enough to recalculate their overpayment penalties.

The values involved aren't huge - maybe £50 over the past year - but I don't like it at all.

If there is ANYWHERE in the world I'll find people who both overpay their mortgages as much as they're able, AND might question what they're being charged for doing so... it's here.. so I'd be really curious to know if anyone else is has come across this issue.

hcb42

I always thought when making a overpayments, a question is asked, as to whether it reduces the ongoing payments or reduces the term. Certainly I would clarify that at time of making an overpayment

As for the rest, no idea on HSBC as not banked with them, I guess it it will be in the print i.e. over 20% and the penalties apply to the whole amount, can see it could be interpreted either way, but then I havent read the small print either!

dimbo61

Can you reduce the term ? I paid £50 to reduce my term .
20% of your monthly payment is not as good as the 10% of the mortgage balance allowed by other lenders.

Thrugelmir

noodle wrote: »

I'm not sure whether to put this down to poor system design and poor communication, or a deliberate attempt to profit from the fact that very few people are boring enough to recalculate their overpayment penalties.

Systems aren't designed with what if's built in. Most people probably adhere to the rules so isn't an issue. Flagrant breach means that lenders are probably within their rights to charge a fee for the wasted time.

noodle

hcb42 wrote: »

I always thought when making a overpayments, a question is asked, as to whether it reduces the ongoing payments or reduces the term. Certainly I would clarify that at time of making an overpayment

The question was never asked - and I never thought to check (it would be entirely irrelevant to me if not for the penalties). I find it odd, however, that they (evidently) treat some overpayments one way, and some the other.

noodle

Thrugelmir wrote: »

Systems aren't designed with what if's built in. Most people probably adhere to the rules so isn't an issue. Flagrant breach means that lenders are probably within their rights to charge a fee for the wasted time.

Excuse me?

Perhaps you're misunderstanding because I refer to 'penalty' fees... that's just terminology. Nothing has been breached and no time has been wasted. I am allowed to repay whatever I want - but they charge early repayment fees above a certain level... as is always the case with fixed rate deals.

They have a formula in their systems for calculating those early repayment fees - so it's hardly beyond the realms of possibility that they would set that formula so that it takes into account the element of a repayment that shouldn't be subject to the penalties.