Halifax Not Reducing Term With Overpayment

fozzie55

In November 2021, we took out a 7 year mortgage, 5 year fixed, with the Halifax, which would have taken us to retirement age.

It was always the plan to overpay when we could by 10% each year and reduce the term. This was fully clear when we took out the mortgage.

We have just overpaid this years 10% which the calculator on the Halifax website says it will reduce the term by 6 months. The two previous overpayments were similar, so we are on track to pay the mortgage off before the 5 year fix ends. Or so we thought.

Our monthly payments never changed for 2 years so we assumed the term being reduced.
Last month they reduced our monthly payment and say they recalculate every year now following Government and Bank of England intervention last August over the Cost of Living Crisis (Liz Truss!) They said they wrote to us, we never received anything.

We cannot reduce the term without reapplying, which obviously we don't want to do. They can't even tell us when the mortgage ends apart from the official term end from the initial mortgage. The chap on the phone understood the problem and said that they have had a few complaints like this. In helping out overburdened mortgage payers with higher interest rates, they have penalised people with comfortable mortgages and paying them off sooner.

He helped me raise a formal complaint. How come the website lets you calculate shortening the term of your mortgage if they won't actually do it?

Does this sound right please, before I make an idiot of myself? Thank you.

Hoenir

Mortgage term is contractual. This can only be changed formally by applying and will require affordability checks etc. Lenders having a duty to lend responsibility. 

Yes, if your mortgage interest rate changes. Your monthly payments will be recalculated over the remaining contractual term of the mortgage. That's how the systems are built to work, i.e. automated. No exceptions. 

If you don't formally change the term. Then continue to overpay your mortgage by the maximum allowed / you can afford.  As this will have the impact of reducing your mortgage term. Also will reduce the amount of interest you'll incur in the future. 

If you have funds in excess of the 10% annual allowance to overpay. Park them in a savings account and overpay the mortgage after the fixed term ends and you commence a new product. 

PS. There's nothing to complain about. 

fozzie55

Thanks, but, I didn't complain, the customer services person on the phone instigated a complaint. The mortgage is fixed for 5 years, no interest rate changes so payments shouldn't change. As you say, overpay your mortgage reduces your mortgage term but Halifax not reducing term, that is the problem.

Veteransaver

I imagine the issue is that due to it being a fixed mortgage, when you make an overpayment then the monthly payment has to fall as well, otherwise each monthly payment after the overpayment will contain an element of overpayment in itself. So Halifax keep the term the same and reduce the monthly payment.
Just keep overpaying, you'll still save money. From what you say I assume the term was 7 years, with 5 years fixed?

Once the 5 year fix is up you should be in a good position to redeem it completely, so you will have reduced the term that way.
It's also worth checking that overpayment is actually sensible, if you took the mortgage out in 2021 it may well be at a lower rate than what you could now get in a saving account, so it may be beneficial to simply not overpay it and put the money into savings (obviously consider any tax implications too as you may end up paying tax on the interest income) then redeem the mortgage when the fixed term ends.

fozzie55

Thanks both of you. Yes it was 5 year fixed but they never changed the monthly payment in the first 2 years with overpayments. They said it was specifically due to Government / Bank of England changes last August to help people struggling with higher interest rates. Yes the 5 year fix is at 1.29% and we don't want to pay monthly when it goes to variable, so hoping to clear it straight after the 5 year fix ends.

Little_bit_taller

Did you let them know you wanted to reduce the term before making the overpayments? It has to be registered on your account overwise it will just reduce your monthly payment although for you this doesn't seem to be happening either.

I am finding that more lenders are bringing the overpayment functionality into their banking apps. I have my mortgage with Santander and they have just updated this functionality and you can chose to reduce term or reduce monthly payment amount.

Edi81

Halifax will change the payment once a year automatically. I’ve slightly overpaid in the first year of my mortgage and my new repayment is now £3 less a month than originally (26 year term fixed for 10 years taken out Nov 22). 

fozzie55

Little_bit_taller said:

Did you let them know you wanted to reduce the term before making the overpayments? It has to be registered on your account overwise it will just reduce your monthly payment although for you this doesn't seem to be happening either.

Yes, we stipulated at application time (online video, lockdown) we want a mortgage to allow overpayments and those overpayments reduce the term not the monthly payment. As the monthly payments never reduced over 2 years we thought that was happening. Reading the terms and conditions again, they can basically do what they want anyway 

Hoenir

fozzie55 said:

Little_bit_taller said:

Did you let them know you wanted to reduce the term before making the overpayments? It has to be registered on your account overwise it will just reduce your monthly payment although for you this doesn't seem to be happening either.

Yes, we stipulated at application time (online video, lockdown) we want a mortgage to allow overpayments and those overpayments reduce the term not the monthly payment. As the monthly payments never reduced over 2 years we thought that was happening. Reading the terms and conditions again, they can basically do what they want anyway 

The inherent danger is that by making the maximum overpayment. You exceed the annual 10% allowance. As a consequence incur penalty charges. Unless the standard monthly payment is adjusted. That's  mathematical fact as there's less interest charged as the capital balance reduces. Meaning more capital gets repaid. 

jrawle

Hoenir said:

The inherent danger is that by making the maximum overpayment. You exceed the annual 10% allowance. As a consequence incur penalty charges. Unless the standard monthly payment is adjusted. That's  mathematical fact as there's less interest charged as the capital balance reduces. Meaning more capital gets repaid. 

I find it hard to believe that's how it works. An overpayment means extra money you have paid into the mortgage account. It doesn't include money the bank takes automatically. Just because you have made an overpayment doesn't suddenly mean the money the bank takes becomes partially an overpayment. If it was, that could easily be the next banking scandal. Tell people they can overpay 10% of their mortgage, then charge them huge fees by claiming the next month's regular payment now constitutes a further overpayment.

My experience of mortgages is mainly with Nationwide. Overpayments of < £500 left the regular monthly payment unchanged. By your reckoning, the regular payment would then be deemed to include a small overpayment, but this is simply untrue. I would have had to pay charges on many occasions if that were the case.

snowqueen555

I'm currently applying through Halifax, can you confirm what the standard is when overpaying, do you have to request it reduces the term?