The Truth Behind Mortgage Lenders Charges
The BBC have recently reported on findings from the FCA regarding practices engaged in by mortgage lenders in double charging interest on mortgages and has indicated that compensation may be payable ‘in the low hundreds’.
Unfortunately the FCA have simply hit on the tip of the iceberg and Oakwood Solicitors can now reveal the true extent of the problem as we have for some time been working on a significant number of cases where individuals have been overcharged by thousands and even tens of thousands of pounds by certain lenders.
The practice has been broadly known as ‘double dipping’ and the mathematical calculations are exceedingly complicated.
In summary however the practice which emerged was that mortgage lenders were charging additional interest and other charges on mortgage accounts which were not in accordance with the terms of the mortgage.
Interest on mortgages accrues on a daily basis based on the capital balance of the mortgage. Borrowers will then pay a monthly payment which will cover both the interest and ordinarily a proportion of the capital balance.
If a borrower misses a monthly payment, the practice of certain lenders has been to then charge interest on the missed mortgage payment. Plainly however this approach is incorrect as the interest has already accrued on the capital balance and to then charge further interest on the missed payment is essentially doubling the interest payable. This is the issue which the FCA have eluded to but the issue is far more complicated.
In practice what was then happening is that the additional interest was added to the capital balance of the mortgage thereby increasing the balance on which further interest is payable. Consequently the daily interest charged thereafter is actually based on the incorrect capital balance and consequently the further interest charged is too high going forward. As interest compounds throughout the duration of the mortgage this means that borrowers are being substantially overcharged over the duration of the mortgage.
We must stress that does not apply to every lender and certain lenders are more culpable than others.
A further issue is that many lenders also charge a number of other spurious charges such as generalised admin fees and other charges which are outside the terms of the mortgage contract. These charges can then also be subject to interest on the capital balance further exacerbating the issue of overpayments.
This can create a false arears position whereby borrowers may be wrongly repossessed and have adverse credit references placed on credit files without legal justification.
The compensation therefore payable to consumers is therefore far higher than anticipated by the FCA. Oakwood Solicitors have access to unique software which can calculate the exact amount of overpayments, including the additional interest charged throughout the duration of the mortgage.
Richard Coulthard, Director and Head of Litigation at Oakwood Solicitors said “For many years certain mortgage companies have managed to get away with levying charges on consumers which the consumers were entirely unaware about and simply didn’t have the software to challenge the amount charged. Many consumers simply take it as a given that the amount charged by a lender is correct and the lenders have exploited that trust and confidence.”
Richard went on to say “The average value of the claims Oakwood Solicitors are handling is in the region of £10,000 due to the compounded interest and charges applied. The FCA do not appear to have the facilities to understand the longer term impact these isolated overcharges have had on the balance of the mortgages. I would encourage anyone who have been in arrears on a mortgage to make enquiries regarding the exact charges levied by the lender.”