Mis-Sold Interest-Only Mortgage Compensation Amounts Detailed

Laura Broad[1]

Laura Broad

Money Savings Advice Mis sold interest only mortgage compensation

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?

How Much Compensation Can I Claim for Interest-Only Mortgage Mis-Selling?

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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The Difference Between Interest-Only and Repayment Mortgages

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.

So What’s The Catch With an Interest-Only Mortgage?

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.

You End Up Owing Considerably More Money

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
Repayment £100,000 3.5% £501 £0 £150,238
Interest-Only £100,000 3.5% £292 £100,000 £187,579

Example repayments calculated assuming fixed 3.5% interest rate over 25 years.

You Need to Have a Reliable Repayment Savings Plan in Place

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.

How to Spot a Mis-Sold Interest-Only Mortgage

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:

  • The borrower not being made aware that the repayments only covered the interest and the mortgage must still be repaid in full at the end of the term
  • The lender or broker not checking to see that the borrower had sufficient and reliable plans in place to make repayments at the end of the term
  • The lender or broker did not give the borrower sufficient impartial information about different mortgage options for them to make an informed decision
  • You were encouraged to use your mortgage to consolidate other debts and loans and secure it against your home when other options were available to you

Can You Claim Compensation for a Mis-Sold Interest-Only Mortgage?

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:

  • You were sold a mortgage by the company or advisor you are claiming against
  • That this company or advisor broke one or more of the FCA’s rules
  • That this breach of their obligations caused you to suffer a financial loss

How Do You Make a Claim?

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.

How Much Compensation Can You Claim?

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:

  • Up to £85,000 if the firm failed after 1st April 2019
  • Up to £50,000 if the firm failed between 1st Jan 2010 and 31st March 2019
  • Up to £48,000 if the firm failed before 1st Jan 2010

These compensation amounts are based on the amount you borrowed and on other criteria.

How Can Money Savings Advice Help You With Making an Interest Only Mortgage Compensation Claim?

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.

Money Savings Advice Author Laura Broad

Laura Broad

Laura is a professional content writer and learning designer, passionate about empowering people through straightforward, jargon-free content. When she's not reading or writing about all things personal finance, you can find her in the gym, barbell in hand.

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