Overpayments to reduce term on Lloyds TSB mortgage

JohnnyCarwash

My annual statement has arrived advising my monthly payment is being reduced due to overpayments I’ve made. On contacting Lloyds TSB this morning, I've been told that this is an automatic thing and that, due to a new FCA rule coming into effect last year, it’s no longer possible for overpayments to reduce the term and I can only continue paying the previous monthly amount by using my overpayment allowance (which I’ve already exhausted by way of a lump sum).

I’m virtually certain I’m being told rubbish as in January my partner managed to do exactly this on her mortgage (from a different provider) without a hitch, and I similarly used to do so with Santander. 

Anyone know anything about this supposed FCA rule or having such problems with Lloyds TSB? Very frustrating…

BikingBud

From the Overpayment Calculator on the Lloyds Site:

We use the following assumptions in the calculations:

• Based on a repayment mortgage

• Any regular monthly overpayments remain the same over the term of the mortgage

• All years are of equal length

• Interest is calculated daily and added monthly

• The mortgage balance shown on the graph and table are the same, and are the amount left on the mortgage at the end of that particular year

• Multiple sub-accounts must be calculated individually

• Estimate of total interest saved is rounded to the nearest pound

• There is no change in interest rate which would recalculate your monthly payment

• There will not be any changes to your mortgage which would result in a recalculation of your monthly payment e.g. changes to your mortgage product, term, type or change of owners

JohnnyCarwash

@BikingBud nice spot and thanks for pointing out. Looks like I’m being told rubbish, and tbh I’ve always struggled to understand the whole overpayment situation with Lloyds, was far clearer with Santander. Think I may book a branch appointment and speak to someone in person to get to the bottom of it  

SilverSix

I can't recall exactly, different lender Nationwide, payments less than £500 were treated differently to those greater than £500.

Hoenir

Your mortgage term is contractual. To shorten it you need to make an official application to do so. The lender cannot unilaterally shorten the term simply due to the fact you've made some overpayments. For the lender to reduce the mortgage term they are obliged by regulation to undertake an affordability check. 

The answer is to up your overpayments. This then gives you totally flexibility. You never know what might happen in the future. 

JohnnyCarwash

@SilverSix I’ve only ever made large lump sum overpayments so have no experience about  about small overpayments tbh. Always try to pay off my 10% allowance in full every year. 

@Hoenir why is an affordability check needed? I’m not asking to up the monthly payment and if I’m overpaying by thousands every year (and maxing out my 10% overpayment allowance) then affording my contractual commitment is clearly not a concern. When with Santander, I’d ring up, be asked if I want to take off term or monthly payment (always chose the former) and I’d get a statement in the post about a week later confirming how much it reduced the mortgage term by. Never had an affordability check to my knowledge. According to partner, it’s exactly the same situ with their provider (which I think is Nationwide). 

Thinking about it from another angle, my mortgage term was roughly 70k for 17 years, fixed for 5, and given overpayment limitations impossible to pay off in full during that deal period without incurring penalties. So I’m only tied to Lloyds until my deal runs out in 2028. I could understand more if I wished to shorten the 5 year deal period, but less so the 17…

Hoenir

Affordability check is a regulatory requirement as lenders now have a duty of care imposed on them. Remember they are dealing with thousands of borrowers concurrently. They aren't micro managing accounts. In summary broad brush approach ensures they don't get fined.  

BikingBud

Hoenir said:

Your mortgage term is contractual. To shorten it you need to make an official application to do so. The lender cannot unilaterally shorten the term simply due to the fact you've made some overpayments. For the lender to reduce the mortgage term they are obliged by regulation to undertake an affordability check. 

The answer is to up your overpayments. This then gives you totally flexibility. You never know what might happen in the future. 

And Santander ask you every time, so there is no unilateral aspect. What has actually changed in terms of affordability.

At the start of the calendar year I owe £100k and am paying £500 per month. I decide to over pay by 10% = £10k and I continue to pay £500 per month where is the affordability change?

Please can you provide the regulation reference for affordability checks due to over payment?

Personally I feel there are a number of mortgage providers that fear they are losing out and are trying to realign their income curves. 

Hoenir

BikingBud said:

Hoenir said:

Your mortgage term is contractual. To shorten it you need to make an official application to do so. The lender cannot unilaterally shorten the term simply due to the fact you've made some overpayments. For the lender to reduce the mortgage term they are obliged by regulation to undertake an affordability check. 

The answer is to up your overpayments. This then gives you totally flexibility. You never know what might happen in the future. 

Please can you provide the regulation reference for affordability checks due to over payment?

Absolutely none. As there's no shortening of the contractual mortgage term.

Lenders systems will automatically revise/change the default payment upon any change in the interest rate charged. To resest the position to the agreed end date. 

BikingBud

But this is not about interest rate changes!

Also no obligation on the lender to re apply affordability checks?

Even the Lloyds website and the illustration i took from there show a shortening of the term!

I said before it is clear that some lenders are supportive of borrowers wishing to shorten the term within the agreed T&Cs, whilst I feel there are a number of mortgage providers that fear they are losing out and are trying to realign their income curves.

jrawle

BikingBud said:

[...]
Even the Lloyds website and the illustration i took from there show a shortening of the term!

Their calculator makes it clear it is for illustration only, and that people who bank with different banks can also use it to work out their overpayments. It's a general tool, not a guide to Lloyds mortgages. The assumptions it lists apply to the calculation. It doesn't mean you can necessarily take out mortgages today with Lloyds that exactly match those assumptions.

Incidentally, when did the OP take out this mortgage? Lloyds TSB hasn't existed since 2013! I wondered what caused me to search for Lloyds TSB yesterday, but now I realise it's in the title of the thread.