Capital Repayment Charges

chris99

I took out an interest only mortgage in 2006 due to the flexibility of the product. One of the stated conditions was that I could make any number of capital repayments of any amount at any time without charge. That was a major consideration in selecting this product and has allowed me reduce the capital balance significantly.

Now the lender has suddenly decided to start charging for all capital repayments no matter what. When I queried it with them, they said there was no charge at the time when I took out the product but they have decided to start charging now. I responded that surely the conditions at the time this particular product was taken out apply for the duration of the product, that's what you said? "Ah yes, but we never promised that we wouldn't change the rules later!"

Can they legally get away with this?

dunstonh

Can they legally get away with this?

Yes. Ad hoc payments are typically not an option with many lenders. Some allow just one a year without charging. Some loads. The only mortgage that would generally guarantee this option being available are flexible mortgages.

TEDDYRUKSPIN

Erm.... dig out your quote (KFI). All fees associated with overpayment must stipulated. It sounds like they are charging you a fee like a ERC. Very strange.

Is your package a variable rate?

chris99

Yes it is variable rate with no early repayment charges.

It also says I can make occasional lump sum or regular repayments. Just checked again. The broker's documentation explicitly says no charges for overpayments. The lender's say overpayments are allowed. It doesn't seem to explicitly address charges.

When interest rates went up, I paid the additional amounts without a murmur. Now they have come down and I've cut my capital to the point where the monthly interest is not causing me much pain, they seem to be changing the rules. It's more the principle of the matter than the actual amount that is annoying. If I go along with it, it will be like making 13 interest payments a year rather than 12 only to hear that "we've made record profits again despite difficult trading conditions". Yeah right!

chris99

dunstonh wrote: »

Yes. Ad hoc payments are typically not an option with many lenders. Some allow just one a year without charging. Some loads. The only mortgage that would generally guarantee this option being available are flexible mortgages.

Does that mean I just have to take it on the chin? It just seems like an underhand way of changing the loan conditions since the interest rate is tied to the Bank of England's rate and they can't do anything about that.

I assume that it's difficult to get new/better products at the moment even though the amount is only about 17% of the value of the property (today)!

MarkyMarkD

I (rarely) don't agree with dunstonh.

They cannot change the rules regarding overpayments during the contractual term.

If the contract/KFI say that you can overpay any amount, without penalty, then that is a contractual term.

pm2326

i agree with MarkyMark, if the terms and conditions state that you are allowed to make overpayments without charge they cant change this. you will have to check though that you dont have a limit on the amount you can make, for example some products only allow a maximum of 5,10 or 15% of the amount you borrowed, overpay by more than this and they will charge.
One thing i will say is the brokers documentation can be wrong, they dont always get the facts right, no offence dunstonh!
the offer of loan from the lender is the only thing you have in your defence against the lender.
personally i would speak to your lender again and raise a complaint if need be.

pm2326

you will also need to clarify what they class as an overpayment and a capital repayment. it may be that your capital repayment must be above a certain amount before you are not charged.
i know of a product that allows overpayments without charge, but only if the overpayment is £200 or more and is paid in a lump sum, anything below this amount is not allowed.

dunstonh

MarkyMarkD wrote: »

I (rarely) don't agree with dunstonh.

They cannot change the rules regarding overpayments during the contractual term.

If the contract/KFI say that you can overpay any amount, without penalty, then that is a contractual term.

Not all features and options are contact guaranteed events though. Just look at portability and service charges. If the contract states overpayments are available then that works in your favour. If it doesnt mention overpayments in the contract and its treated as a service option then they can alter that.

With something like this, if you complain, chances are the lender will cave in.

chris99

Thanks, much appreciated. After rechecking again the docs say repayments are allowed but they don't say that they won't charge an admin fee for dealing with them so it looks like I'm stuck with it. I'll press as hard as I can (with a complaint) but it looks like my only option is to switch from monthly overpayments to bi-monthly ones. That will save a bit.

Tiddler_2

Can I ask who the lender is, and are you asking them to recalculate your payments after each part repayment?

As an alternative, would it not be cheaper to ask them to change the mortgage to a repayment mortgage (or part repayment/part interest only) so that it gives you a monthly payment of what you are currently paying?

Hope you understand what I mean!!