Deferred Interest mortgage

Fmc1761

Hi
In 1990 we took out a “deferred interest” repayment mortgage with the abbey national. The way it worked - if I’m remembering it correctly - was that although our payments were part interest and part capital, some of the inteterest payments were “deferred” - I think for 5 years. The idea was that you could take out a higher mortgage than you could really afford, and when the deferred period was up, the unpaid interest would be distributed throughout the remaining term of the mortgage. What we were not aware of was that at the end of the deferred period the payments would increase dramatically and we would owe £7k more than we did when we first took out the mortgage, even though we had been making payments off the capital. It was sold to us as a way of buying a house that we could not afford, but “hopefully” in 5 years time, we could afford it - which did not happen and we had to borrow £7k to get us back to the financial position we were in 5 years previously ! Can I make a claim ? Thanks for any advice

BoGoF

Make a claim for what?

AnotherJoe

Fmc1761 wrote: »

Hi
In 1990 we took out a “deferred interest” repayment mortgage with the abbey national. The way it worked - if I’m remembering it correctly - was that although our payments were part interest and part capital, some of the interest payments were “deferred” - I think for 5 years. The idea was that you could take out a higher mortgage than you could really afford, and when the deferred period was up, the unpaid interest would be distributed throughout the remaining term of the mortgage.

What we were not aware of was that at the end of the deferred period the payments would increase dramatically and we would owe £7k more (no **** Sherlock. Did you think elves paid the deferred interest?) than we did when we first took out the mortgage, even though we had been making payments off the capital. BUT NOT THE INTEREST !!!

It was sold to us as a way of buying a house that we could not afford Which it was, and it worked, but you still want compo?? , but “hopefully” in 5 years time, we could afford it - which did not happen and we had to borrow £7k to get us back to the financial position we were in 5 years previously ! Can I make a claim ? Thanks for any advice

So the interest was deferred (eg payable later) and you want to make a claim because when the term was up, they wanted that deferred interest paid back?!

That you knew had been deferred not written off? Is that correct?

You actually want to make a claim for not understanding that when you agreed to deferring interest, that meant the interest was deferred, and just to be crystal clear, the mortgage was even called " a deferred interest mortgage" ??
And even though it did, actually, allow you to buy a house you could not otherwise have afforded?

The mind boggles.


TL;DR "no"

enthusiasticsaver

Fmc1761 wrote: »

Hi
In 1990 we took out a “deferred interest” repayment mortgage with the abbey national. The way it worked - if I’m remembering it correctly - was that although our payments were part interest and part capital, some of the inteterest payments were “deferred” - I think for 5 years. The idea was that you could take out a higher mortgage than you could really afford, and when the deferred period was up, the unpaid interest would be distributed throughout the remaining term of the mortgage. What we were not aware of was that at the end of the deferred period the payments would increase dramatically and we would owe £7k more than we did when we first took out the mortgage, even though we had been making payments off the capital. It was sold to us as a way of buying a house that we could not afford, but “hopefully” in 5 years time, we could afford it - which did not happen and we had to borrow £7k to get us back to the financial position we were in 5 years previously ! Can I make a claim ? Thanks for any advice

I remember those mortgages but at no point was it not made clear that you would have to make the payments up at some point and you would end up with a bigger mortgage. It was aimed at those who anticipated they would be on bigger salaries in 5 years time whether due to change in circumstances or promotions. I know this because we fell into the trap too as we had two small children and I was a SAHM just moved to a new house and interest rates were going up every month as high as 15%. Luckily I could see the writing on the wall by seeing the balance increase monthly and opted to return to work instead and changed the mortgage back to a non deferred one.

They were a mistake to take out but you would only have grounds to complain if it was not made clear the mortgage would increase. Mortgages were not as highly regulated as now but even so unless you have definitive proof you did not realise how it worked I don't think you have grounds to complain or claim compensation.

davidmcn

Fmc1761 wrote: »

In 1990 we took out a “deferred interest” repayment mortgage with the abbey national. The way it worked - if I’m remembering it correctly - was that although our payments were part interest and part capital, some of the inteterest payments were “deferred” - I think for 5 years.

Leaving aside everything else, it sounds like even if you really didn't understand it in 1990, you became aware of the reality in 1995. You can't then twiddle your thumbs for 24 years and suddenly decide to make a claim.

minimike2

Regardless of the fact the OP clearly knew what they were doing but have now decided to clutch at straws by jumping on the 21st century compensation wagon, in 1990 mortgages were not regulated.

There are no grounds for a complaint.

Out of interest (oh the puns), I wonder if the OP stayed in that property and how much its value appreciated over the years? I hope so, that would be the icing on the cake for this one

miss_undastood

I don’t see any ground for complaining. The interest was effectively paused for 5 years but then at the end of the 5 years it was added to your loan.

£7k for a 5 year loan of enough money to purchase your house doesn’t seem too bad

For comparison I took out over 308k to purchase my house.
265k or that is at 3.89%. Using the same type of mortgage it would cost me £55k in interest over 5 years

I appreciate your house would have cost less but it will also have appreciated in value.

dunstonh

A number of issues.

1 - They did what they said they would.
2 - This is back in the days when the solicitor would read the offer letter to you and explain the risks
3 - Mortgage regulation only started in 2004.
4 - It fails the FCA 3 and 6 year rule (Complaints must be made 6 years from purchase and 3 years from being reasonably aware of an issue)