Interest-only mortgages are classed as high-risk products. After all, how many of us have tens or even hundreds of thousands of pounds lying around to pay off as a lump sum?
There is no limit to the amount of compensation you could receive if you've been mis-sold a mortgage, with five-figure sums common. If a lender is no longer in business you could get up to £85,000 depending on when the firm closed.
With high-risk financial products like this, there is also a risk that they were mis-sold. If you were mis-sold an interest-only mortgage, then you could be owed compensation.
This guide looks at what interest-only mortgages are, what to do if you think you’ve been mis-sold one and how much compensation you could claim.
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With a regular repayment mortgage, you pay back both the interest on the loan and a chunk of the amount you originally borrowed each month. You’ll pay more each month doing this, but you will eventually pay off the loan (plus its interest) in full.
An interest-only mortgage has much lower monthly repayments as you’re only paying off the interest on the loan each month. You never chip away at the amount you originally borrowed. Down the line, when the mortgage term comes to an end, you pay it all back in one go.
This means you don’t have to worry about clearing the balance as you go. As long as you can keep making repayments, that property is yours for at least the length of the mortgage term. What you do with the money you save in repayments is up to you - you could invest them, put them towards another property or even chose to pay off a lump of the mortgage if your lender allows it.
Some mortgage lenders are not big fans of interest-only mortgages, and they certainly aren’t right for everyone looking to get on the property ladder. Let’s look at some of the reasons why you might want to avoid an interest-only mortgage.
Overall, you pay more to pay off an interest-only mortgage of the same interest rate as a repayment mortgage. The numbers speak for themselves.
|Mortgage Type||Mortgage Amount||Interest Rate||Monthly Repayment||Left to pay at the end||Total Repaid|
Example repayments calculated assuming fixed 3.5% interest rate over 25 years.
If you have no plans to save throughout the term of the mortgage, the lump sum to pay off at the end of the mortgage term is usually raised by selling the property. This is a risky plan. Property values usually increase over time, but this isn’t a given.
If the property market suffers you could end up owing more than what your home is worth at the end of the term, and you’ll have to foot the bill to fill that gap through other means.
Given how risky interest-only mortgage can be, lenders must approach selling them carefully and follow strict guidance from the Financial Conduct Authority. If these rules are broken at any point then you may be able to claim compensation to cover any financial losses.
Common situations where interest-only mortgages were mis-sold include:
If you think you have been mis-sold an interest-only mortgage then it’s up to you to make a complaint. To get a compensation payout, you need to prove that:
It’s up to you to provide evidence that your claim is legitimate. First, gather all the information you have relating to your mortgage - what you were told, what you weren’t told and any communications you received from the seller. The more evidence you have, the better.
Then you have a choice: handle the claim yourself, or involve a solicitor to do it for you. If you do it yourself, write a letter of complaint to your lender or broker. There are plenty of complaint letter templates available online if you don’t know where to start.
If you don’t hear back within eight weeks or you aren’t satisfied with their response, you can escalate the issue to the Financial Ombudsman who will investigate it for you. If they decide you were financially worse off as a result of the advice, you were given they will ask the lender or broker to pay you compensation.
The amount of compensation you can claim depends on the level of financial damage and unnecessary distress the lender or broker’s negligence caused you. As such, it’s hard to give an exact figure. Repayments of tens of thousands of pounds are not unheard of.
If your advisor or lender is no longer in business, you can still claim for your mis-sold mortgage through the Financial Services Compensation Scheme.
You could get:
These compensation amounts are based on the amount you borrowed and on other criteria.
Here at Money Savings Advice, we have partnered with some of the UK’s leading Financial Claims management companies. They have already helped thousands of people claim compensation for mis-sold financial products and they can do the same for you.
Choosing an independent claims management company means they won’t proceed with a claim unless they are sure it is in your best interests. They are also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these claim management companies who can help you make a compensation claim, then click on the below and answer the very simple questions.
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Consumer Credit Justice Limited is authorised and regulated by the Financial Conduct Authority, Reference 834486. We are regulated by the FCA in respect to claims management activities.
You do not need to use the services of Consumer Credit Justice, or any other claims management company, to make a claim. You are free to choose an independent solicitor of your choice.