Dispute Bank due to incorrect information on early repayment

Ivy82

We obtained a mortgage with a loan-to-value (LTV) ratio of 78% at a fixed interest rate of 1.6% for a 2-year term. Our agreement allowed us to make overpayments of 10% each year. After selling our previous property, we had a 20% deposit that we intended to use to pay down our current home's mortgage. In November, we made a 10% overpayment with the intention of making another 10% in January, believing that the early repayment terms were based on the calendar year. However, when we contacted the bank in December to confirm our intention, they informed us that the repayment period was based on a rolling year, rather than the calendar year. Despite our arguments and even receiving confirmation in the mail, we were unsuccessful in convincing them. As a result, we decided to allocate that money for a different purpose.

Now, as we near the end of our fixed term, we have been informed that our LTV stands at 68%, and the interest charges will not change until it reaches 75%. If we had been given the opportunity to make another 10% repayment, our LTV would have been only 61.2%, enabling us to make an additional repayment of 1.2% and reducing our LTV to 60%, which would have resulted in a lower interest rate. However, we are currently stuck with a higher interest rate and feel deceived. Is there a possibility to argue with the bank that they should apply the interest rate based on a 60% LTV due to their mistake?

MattMattMattUK

Ivy82 said:

We obtained a mortgage with a loan-to-value (LTV) ratio of 78% at a fixed interest rate of 1.6% for a 2-year term. Our agreement allowed us to make overpayments of 10% each year. After selling our previous property, we had a 20% deposit that we intended to use to pay down our current home's mortgage. In November, we made a 10% overpayment with the intention of making another 10% in January, believing that the early repayment terms were based on the calendar year. However, when we contacted the bank in December to confirm our intention, they informed us that the repayment period was based on a rolling year, rather than the calendar year. Despite our arguments and even receiving confirmation in the mail, we were unsuccessful in convincing them. As a result, we decided to allocate that money for a different purpose.

Now, as we near the end of our fixed term, we have been informed that our LTV stands at 68%, and the interest charges will not change until it reaches 75%. If we had been given the opportunity to make another 10% repayment, our LTV would have been only 61.2%, enabling us to make an additional repayment of 1.2% and reducing our LTV to 60%, which would have resulted in a lower interest rate. However, we are currently stuck with a higher interest rate and feel deceived. Is there a possibility to argue with the bank that they should apply the interest rate based on a 60% LTV due to their mistake?

No, not a chance, it is unclear from what you have written if they have even made a mistake.

Why did you spend the money, rather than putting in into savings and using it to pay the additional amount at the end of the two year deal?

MWT

Ivy82 said:

...they informed us that the repayment period was based on a rolling year, rather than the calendar year. Despite our arguments and even receiving confirmation in the mail, we were unsuccessful in convincing them. As a result, we decided to allocate that money for a different purpose.

This is unclear, with regards to the 'confirmation in the mail' ... are you saying you have confirmation that it should have been calendar year based?

The correct answer should be in the mortgage documents you received when you started the mortgage...

If you still felt the bank was wrong why didn't you raise a complaint at the time?

Which bank is this?

Ivy82

The bank admitted that they made a mistake by providing wrong information and acknowledged it was their fault.

We used the remaining 10% to repay our personal loans because, at that time, we considered it wasteful to keep the money in savings with minimal returns. I firmly believe that this situation is entirely the bank's fault. If they had provided us with accurate information, we would have been able to overpay another 10%, thereby reducing our loan-to-value (LTV) ratio and clearing our personal loan through monthly repayments. This would have resulted in having less savings and spending less. Unfortunately, we did not have the foresight to predict the significant increase in interest rates within a span of 12-14 months.

MWT

Ivy82 said:

The bank admitted that they made a mistake by providing wrong information and acknowledged it was their fault.

We used the remaining 10% to repay our personal loans because, at that time, we considered it wasteful to keep the money in savings with minimal returns. I firmly believe that this situation is entirely the bank's fault. If they had provided us with accurate information, we would have been able to overpay another 10%, thereby reducing our loan-to-value (LTV) ratio and clearing our personal loan through monthly repayments. This would have resulted in having less savings and spending less. Unfortunately, we did not have the foresight to predict the significant increase in interest rates within a span of 12-14 months.

When you said that you made the first 10% overpayment in November, was that 2021 or 2022?

When did you get the letter admitting they made a mistake?

When did you use the remaining 10% to repay your loans?

Ivy82

We bought the property in November 2021, and we made a 10% repayment in November 2022. When I called the bank last month on June 27th to inquire about remortgaging, they admitted it was their mistake. They mentioned that they are investigating my complaint and would like to know my expectations regarding compensation. At that point, I wasn't sure, so I asked for some time to calculate the financial impact of this situation. We paid off our personal loan in December 2022

MWT

Thanks, so it does sound like you have a valid claim, but it is going to be complicated to calculate.

Perhaps once way to look at it is what would the penalty have been if you had made the the extra repayment and the rules of your mortgage had applied as the bank incorrectly though they did at the time?... This sets a limit on the value you felt that paying down the mortgage would be worth at the time...

Similarly what benefit did you get by repaying the personal loans? ... were these actually loans or are we talking about credit card debt and overdrafts?

Depending on the interest rate on those loans, that may arguably have been a better use of the funds anyway... and since you elected not to retain the funds to pay down the mortgage at the end of the fixed period, it is going to be hard to claim that you were always intending to reduce the balance below a 60% LTV...

Hindsight is always 20/20 as they say, but you have to constrain your claim to what was reasonably foreseeable and what your actions show as regards to your intentions...

Ivy82

I vaguely recall that they were estimating the overpayment fee to be around 4.5k, perhaps that's the cost of compensation I should claim. 

Yes, we did save on the interest for our personal loan, which we took when we moved homes to cover the stamp duty. I believe the interest rate for the personal loan was 3%, but as you can see, the current interest rates are so high compared to what if we have to take a loan now to repay some of the mortgage and bring the loan-to-value (LTV) ratio to 60%.

My primary concern is the interest rate. A lower LTV could have reduced our interest rate, but unfortunately, this opportunity was missed due to their misunderstanding and they should offer the onterest rate based on 60% LTV though I will have 68% LTV. 

MWT

Probably the most straightforward calculation is the interest on that 10% mortgage reduction that you didn't make, from January this year until June, when they told you they made a mistake and you could have made the reduction...

It is going to be hard to argue for much more than that since you didn't think it was worth retaining the funds to make the reduction at the end of the fixed period in November this year even though that was only a year away at the time you used the funds for your loans...

born_again

Ivy82 said:

We bought the property in November 2021, and we made a 10% repayment in November 2022. When I called the bank last month on June 27th to inquire about remortgaging, they admitted it was their mistake. They mentioned that they are investigating my complaint and would like to know my expectations regarding compensation. At that point, I wasn't sure, so I asked for some time to calculate the financial impact of this situation. We paid off our personal loan in December 2022

Put it to them, that due to your error, you would now be paying a higher interest rate, so your expectation is you would like to have the lower rate & that would be all you would be looking for.

As in reality this is not going to cost them £££ in a pay out out now. It is something that they would seriously look at. 

MWT

No harm in asking ...