Offset mortgage and the Ombudsman

HobgoblinBT

I am a latecomer to this thread. I worked in banking for nearly 40 years including in Commercial and Corporate banking where some of our bigger customers operated multi currency lending facilities which offset debit and credit facilities across many accounts including those in sterling and foreign currencies.  The balances were offset for balance purposes against the net overdraft facility.  The balances were also offset for interest purposes but typically the customer paid a “turn” in interest.  So the net facility might be in credit but the accounts in debit would be charged at the “turn” rate, typically 2% on any debit balances.  The above is more complicated than your case. I therefore have some experience on this topic from the lender’s perspective.

Looking at the IF website on its offset mortgages there are two options;

Option 1 is where interest is charged on the outstanding mortgage balance. Interest is paid on the offsetting accounts (current/savings).  The credit interest is deducted from the debit interest and your payment the net amount of interest.  

Option 2 is where no interest is earned on the offsetting account(s) and the respective credit and debit balances are offset (netted) and interest is charged on the net debit balance.

You appear to have Option 1.  That is why IF rejected your complaint. That is why the Ombudsmen rejected and upheld its decision.  The terms and conditions of the IF mortgage on Option 1 have been applied correctly.  You are therefore likely to loose any court case on challenging that IF have not delivered the product correctly.

It seems to me that you have the wrong product, ie you have Offset Option 1 which sets debit interest against credit interest not offsets credit balance against debit balance You believe that you had an offset mortgage as described under Offset Option 2.  

Alternatively, I suggest that you look at your paperwork for the mortgage to see what it says on this matter and then consider did you get the mortgage type that you applied for.  Additionally, check any paperwork from anyone who advised you on the mortgage product (broker?) so consider if there is a case of mis selling against the seller.  If you acted without advice it may be the case that the mortgage was mis bought rather than mis sold.

Are IF willing/able to change your mortgage product from Option 1 to Option 2?

In any case as you have more savings than interest why don’t you just repay the outstanding balance to bring this matter to a close?

grumpy_codger

HobgoblinBT said:

Looking at the IF website on its offset mortgages there are two options;

It would make more sense to say where exactly you looked.

I see this (disused?) calculator that doesn't have any options: https://mortgages.firstdirect.com/mortgage-calculators/offset-mortgage-calculator

And I see Information about our mortgages  that clearly says

The first direct Offset Mortgage is an interest only product where qualifying savings and current
account balances can be linked to the mortgage so that interest is only paid on the difference.

Halevie1

grumpy_codger said:

https://www.thisismoney.co.uk/money/mortgageshome/article-14418493/We-owe-300-000-offset-mortgage-save-money-DAVID-HOLLINGWORTH-replies.html

- nothing special, just some new article on offset mortgages

Thanks - agree with the comments in the article. An offset mortgage offsets the capital, so if the mortgage is fully offset, there can be no interest payment. I struggle to understand comments from some people on the forum who suggest it is interest that is offset. That isn't how offset mortgages work. I don't need a mortgage anymore (because the mortgage is fully offset) but I have deliberately not closed the account for two years to show IF, and the ombudsman, that IF isn't running the mortgage properly and is overcharging.... certainly me, and potentially thousands of others.

Halevie1

HobgoblinBT said:

I am a latecomer to this thread. I worked in banking for nearly 40 years including in Commercial and Corporate banking where some of our bigger customers operated multi currency lending facilities which offset debit and credit facilities across many accounts including those in sterling and foreign currencies.  The balances were offset for balance purposes against the net overdraft facility.  The balances were also offset for interest purposes but typically the customer paid a “turn” in interest.  So the net facility might be in credit but the accounts in debit would be charged at the “turn” rate, typically 2% on any debit balances.  The above is more complicated than your case. I therefore have some experience on this topic from the lender’s perspective.

Looking at the IF website on its offset mortgages there are two options;

Option 1 is where interest is charged on the outstanding mortgage balance. Interest is paid on the offsetting accounts (current/savings).  The credit interest is deducted from the debit interest and your payment the net amount of interest.  

Option 2 is where no interest is earned on the offsetting account(s) and the respective credit and debit balances are offset (netted) and interest is charged on the net debit balance.

You appear to have Option 1.  That is why IF rejected your complaint. That is why the Ombudsmen rejected and upheld its decision.  The terms and conditions of the IF mortgage on Option 1 have been applied correctly.  You are therefore likely to loose any court case on challenging that IF have not delivered the product correctly.

It seems to me that you have the wrong product, ie you have Offset Option 1 which sets debit interest against credit interest not offsets credit balance against debit balance You believe that you had an offset mortgage as described under Offset Option 2.  

Alternatively, I suggest that you look at your paperwork for the mortgage to see what it says on this matter and then consider did you get the mortgage type that you applied for.  Additionally, check any paperwork from anyone who advised you on the mortgage product (broker?) so consider if there is a case of mis selling against the seller.  If you acted without advice it may be the case that the mortgage was mis bought rather than mis sold.

Are IF willing/able to change your mortgage product from Option 1 to Option 2?

In any case as you have more savings than interest why don’t you just repay the outstanding balance to bring this matter to a close?

Thank you for the post. The mortgage was set up 20 years ago so I can't remember the details and wouldn't have kept much of the broker's initial paperwork. I have been raising the issue of IF's charges for most of that time and I've raised three complaints regarding the mortgage interest charges to the Ombudsman. At no time has anyone said anything about Options 1 & 2. I have explained time and time again what I expected to happen with the mortgage and nobody has said "you should be on Option 2". I can't see any benefit in Option 1. Why would anyone want it and why would IF even offer it?

Having said that, I still don't understand IF's charges if it is using Option 1. My mortgage is 479,000. At 7% interest, that is £2,800 a month. The offset account has £480,000 in it. At 1.4% interest that is £560 a month. IF is charging £260 a month interest. I can't figure it out on either basis. 

My mortgage T&Cs say the value in the offset account is taken from the value in the mortgage account and interest charged at the variable rate on the balance. IF makes things even more complicated as it has split my mortgage in two (different values) and uses the value in the savings account to offset different amounts by mortgage account then charges interest for each account. That is calculated as a monthly charge in advance based on a average of 30.4 days in a month then the payment made in the previous month is used to reconcile the forecast payment based on actual days in that month. It isn't possible, with the information IF provides, to check the calculation. To check the calculation, I have to get IF to say what value it applied to each mortgage account (before it divided it by the average number of days in a month). They only do that each time I complain and I still can't understand how they have calculated it, especially in months where the interest or saving rate changes..

HobgoblinBT

Grumpy Codger….not quite sure why you have linked to First Direct as the Offset mortgage is with Intelligent Finance?

A link to option 1 and 2…  https://www.if.com/mortgages/mortgages-guide.html     Check section under “About Offset Mortgages”

Hope that helps.

grumpy_codger

HobgoblinBT said:

Grumpy Codger….not quite sure why you have linked to First Direct as the Offset mortgage is with Intelligent Finance?

My apologies. Names are different, but they used to have a lot in common two decades ago.

ETA: 'option two' is an interesting concept that I struggle to understand.

Under option two you maximise the interest earned on your Intelligent Finance savings up to the maximum debit balance of your mortgage, but get no reduction in the cost of your borrowing. The interest earned on this option is liable to tax in the normal way.

You maximise how? What's the point if the interest on savings is still taxable and there is no reduction in the cost of mortgage?

Does this mean that they pay the same interest rate on savings that they charge on the mortgage? Even in this case I don't see under what circumstances this can be better than option one.

This makes sense only if available savings rates can be higher than the mortgage rate and savings are actively managed buy the customer. However, in this case I don't see any 'offset' here - it's just a normal mortgage and ordinary savings.