Offset mortgage and the Ombudsman

kingstreet

Following your unsuccessful FOS complaints, your next and only potential resolution is via the courts.

silvercar

Halevie1 said:

silvercar said:

Wow! certainly looks like the ombudsman doesn't understand that it is the interest rate that is wrong not the calculation. Could you ask IF in simple terms, why the interest on the savings account isn't identical to the interest on the mortgage? 

I have seen this once before on here and the explanation was user error. The mortgagee had by mistake built up savings in a savings account with the same provider rather than in the actual offset savings account. 

The IF mortgages department won't discuss this and has maintained that position for the past two years. They just refer me back to their 2022 letter (part of it above). The savings account is the offset account (there was also a current account that they took interest payments from but IF closed current accounts 12 - 18 months ago. The value in the current account and the savings account were used to offset the mortgage account). The other IF "inconsistency" is the the T&Cs say is an interest only account and the capital value will not change during the term. But for years it has been taking payments from the current account and reducing the capital value.

There is a logic to that. If your mortgage is fully offset, your payments can’t go to interest as there shouldn’t be any charged, so they have to go to capital, IF also do allow you to choose between reducing payments or maintaining payments and reducing the term.

You need to find out if other people are in the same situation, are their groups on Facebook or Reddit discussing the same issue?

IF closed to new business a while ago. Given you have such difficulty with IF an option would be to move your mortgage elsewhere, while still pursuing the issue.

Halevie1

tetrarch said:

Halevie1 said:

silvercar said:

Wow! certainly looks like the ombudsman doesn't understand that it is the interest rate that is wrong not the calculation. Could you ask IF in simple terms, why the interest on the savings account isn't identical to the interest on the mortgage? 

I have seen this once before on here and the explanation was user error. The mortgagee had by mistake built up savings in a savings account with the same provider rather than in the actual offset savings account. 

The IF mortgages department won't discuss this and has maintained that position for the past two years. They just refer me back to their 2022 letter (part of it above). The savings account is the offset account (there was also a current account that they took interest payments from but IF closed current accounts 12 - 18 months ago. The value in the current account and the savings account were used to offset the mortgage account). The other IF "inconsistency" is the the T&Cs say is an interest only account and the capital value will not change during the term. But for years it has been taking payments from the current account and reducing the capital value.

The emboldened part above is the crux of your problem. I would suggest that, had IF continued to offer a current account then your offset arrangement would have worked as advertised. It's only these (ostensibly) offsetting mortgage and savings accounts that have caused the problem

What relationship changes were stated by IF when these accounts were withdrawn?

Regards

Tet

I'm not sure why you think the current account is relevant as is isn't the account used for offsetting the mortgage, either previously or now. The current account was where DDs, standing orders and daily banking transactions occurred that weren't allowed in a Savings account. The Mortgage and Savings accounts remain and haven't changed. 

Hoenir

Halevie1 said:

It clearly isn't right to be offsetting the interest rather than the capital value as that is the whole point of an offset mortgage.


  

In my personal experience it isn't. I took out an offset mortgage with the Hinckley & Rugby Building Society in July 2007. The way the offset worked (as I would expect it to from a financial system POV) . Was that the interest on the balance in the offset account earnt interest on a daily basis. Once a month this interest was credited to the mortgage loan accunt. The interest rate being that equivalent to the rate charged on the mortgage. 

In our case. No interest was earnt on any offset balance that exceeded the mount owed on the mortgage. 

There's no possibility that the IF mortgage system was capable of doing what you expected it to do. That's not how the financial world works. The two accounts, mortgage and offset would have been totally unrelated.  Imagine the complexity if a system had to look at the mortgage account on a daily basis and cross reference this to a savings account. In order to calculate the amount of interest to charge at the end of any given period. Mind boggling complex.  Would have incurred a huge expense in computer programming as well. 

silvercar

Hoenir said:

Halevie1 said:

It clearly isn't right to be offsetting the interest rather than the capital value as that is the whole point of an offset mortgage.


  

In my personal experience it isn't. I took out an offset mortgage with the Hinckley & Rugby Building Society in July 2007. The way the offset worked (as I would expect it to from a financial system POV) . Was that the interest on the balance in the offset account earnt interest on a daily basis. Once a month this interest was credited to the mortgage loan accunt. The interest rate being that equivalent to the rate charged on the mortgage. 

In our case. No interest was earnt on any offset balance that exceeded the mount owed on the mortgage. 

There's no possibility that the IF mortgage system was capable of doing what you expected it to do. That's not how the financial world works. The two accounts, mortgage and offset would have been totally unrelated.  Imagine the complexity if a system had to look at the mortgage account on a daily basis and cross reference this to a savings account. In order to calculate the amount of interest to charge at the end of any given period. Mind boggling complex.  Would have incurred a huge expense in computer programming as well. 

In the days when offsets were more popular (I took mine in the late 1990s, so around then maybe) there were 2 distinct types. Those where there was an mortgage account and a savings account, the interest being charged on the difference between the two and those that were operated more like a current account, so all your debits and credits went through something like a current account and you paid interest on the outstanding amount. I know First Direct did the latter sort, and by the sound of it so did Intelligent Finance. It seems like IF may have had both a current account and a savings account attached to the mortgage account, but the principle was the same.

silvercar

I found this post on reddit:

https://www.reddit.com/r/LegalAdviceUK/comments/17mxg4m/offset_mortgage_changing_rules_is_it_allowed/

It's archived, so not an active post, but worth a read.

It seems IF shut down their current accounts a year+ ago. Leaving borrowers with a mortgage and a savings account. It seems that the link is broken between the interest rate on both being the same. I'd hazard a guess that most people wanting an offset current account moved their mortgage elsewhere. 

grumpy_codger

Halevie1 said:

...They also charge an amount ... that ... they can't explain. 
...
Ombudsman's conclusion regarding the current complaint

I cannot contribute anything useful to the discussion, but just want to say that it's a good confirmation of my usual point: idiots can be found everywhere - in IF, in FSO, in our government. 
ETA: and from time to time I have a feeling that they are taking over.
  

Hoenir

silvercar said:

Hoenir said:

Halevie1 said:

It clearly isn't right to be offsetting the interest rather than the capital value as that is the whole point of an offset mortgage.


  

In my personal experience it isn't. I took out an offset mortgage with the Hinckley & Rugby Building Society in July 2007. The way the offset worked (as I would expect it to from a financial system POV) . Was that the interest on the balance in the offset account earnt interest on a daily basis. Once a month this interest was credited to the mortgage loan accunt. The interest rate being that equivalent to the rate charged on the mortgage. 

In our case. No interest was earnt on any offset balance that exceeded the mount owed on the mortgage. 

There's no possibility that the IF mortgage system was capable of doing what you expected it to do. That's not how the financial world works. The two accounts, mortgage and offset would have been totally unrelated.  Imagine the complexity if a system had to look at the mortgage account on a daily basis and cross reference this to a savings account. In order to calculate the amount of interest to charge at the end of any given period. Mind boggling complex.  Would have incurred a huge expense in computer programming as well. 

In the days when offsets were more popular (I took mine in the late 1990s, so around then maybe) there were 2 distinct types. Those where there was an mortgage account and a savings account, the interest being charged on the difference between the two and those that were operated more like a current account, so all your debits and credits went through something like a current account and you paid interest on the outstanding amount. I know First Direct did the latter sort, and by the sound of it so did Intelligent Finance. It seems like IF may have had both a current account and a savings account attached to the mortgage account, but the principle was the same.

The first was the Virgin One Account that operated in the manner of a current account with a huge overdraft facility. Seem to recall this concept hit the rocks. With many people struggling to operate the account in the manner it was intended. Some years ago compensation was paid to affected borrowers.

silvercar

Hoenir said:

silvercar said:

Hoenir said:

Halevie1 said:

It clearly isn't right to be offsetting the interest rather than the capital value as that is the whole point of an offset mortgage.


  

In my personal experience it isn't. I took out an offset mortgage with the Hinckley & Rugby Building Society in July 2007. The way the offset worked (as I would expect it to from a financial system POV) . Was that the interest on the balance in the offset account earnt interest on a daily basis. Once a month this interest was credited to the mortgage loan accunt. The interest rate being that equivalent to the rate charged on the mortgage. 

In our case. No interest was earnt on any offset balance that exceeded the mount owed on the mortgage. 

There's no possibility that the IF mortgage system was capable of doing what you expected it to do. That's not how the financial world works. The two accounts, mortgage and offset would have been totally unrelated.  Imagine the complexity if a system had to look at the mortgage account on a daily basis and cross reference this to a savings account. In order to calculate the amount of interest to charge at the end of any given period. Mind boggling complex.  Would have incurred a huge expense in computer programming as well. 

In the days when offsets were more popular (I took mine in the late 1990s, so around then maybe) there were 2 distinct types. Those where there was an mortgage account and a savings account, the interest being charged on the difference between the two and those that were operated more like a current account, so all your debits and credits went through something like a current account and you paid interest on the outstanding amount. I know First Direct did the latter sort, and by the sound of it so did Intelligent Finance. It seems like IF may have had both a current account and a savings account attached to the mortgage account, but the principle was the same.

The first was the Virgin One Account that operated in the manner of a current account with a huge overdraft facility. Seem to recall this concept hit the rocks. With many people struggling to operate the account in the manner it was intended. Some years ago compensation was paid to affected borrowers.

User error. The whole idea of an offset mortgage requires a different thought pattern. Slightly easier when you have a savings offset account and a mortgage account. One step further and having negative bank balances the size of your mortgage can be startling to people until they get their head around it. I can understand why some struggled to operate. I can see why they lost popularity as the higher interest rate only justifies having an offset if you have funds in the offset. For those that can make it work for them there is the added benefit of not paying tax on interest that you might otherwise. We will have saved at least 80k over a traditional mortgage by the time it’s cleared.

silvercar

OP, if you have exhausted the ombudsman route, the only other option is court, as K_S said above. Unless you can engage with IF through very simple questions, like “why is my savings rate not the same as my mortgage rate?” Of course the risk is the judge doesn’t understand the intricacies of an offset mortgage in the same way as the ombudsman didn’t.