Mis-Sold Interest-Only Mortgage Compensation Claims Guide

Laura Broad[1]

Laura Broad

Money Savings Advice Mis sold interest only mortgage

Whenever you borrow money, you need to pay it all back with interest. The more you borrow, the higher your monthly repayments will be or the longer you will spend paying it all back.

This is how repayment mortgages work. Each month, you chip away at what you borrowed and pay off the interest too. But these repayments can be expensive. Missing mortgage repayments or being in arrears could eventually lead to your home being repossessed.

What Is Interest-Only Mortgage Mis-Selling Compensation?

If you were mis-sold an interest-only mortgage you could be entitled to compensation. You were mis-sold if you weren't given sufficient explanation of the costs and nature of the agreement when you took out the mortgage.

It's these high repayments that encourage some people to look for alternative options. That's the appeal of interest-only mortgages. So what's the catch, and why are so many people complaining to the Financial Conduct Authority about mis-sold interest-only mortgages?

Continue reading to get all the details

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What Is an Interest-Only Mortgage?

An interest-only mortgage works by the borrower only paying back the interest on the loan while the mortgage is live. This means monthly repayments are kept at a minimum for the length of the mortgage.

The catch is that you never make any progress towards chipping away at the original amount you borrowed. At the end of the mortgage term, you have to pay back the lump sum you borrowed in full. If you don't have that kind of money saved and ready to go, you may have to sell your home to pay off the balance.

Is an Interest-Only Mortgage Right for You?

The truth is, interest-only mortgages are not suitable for most people. There are a few reasons for this, including the fact that you end up having to pay back considerably more overall than if you had a repayment mortgage. There is also an extra level of risk involved with the lump sum payment you owe back at the end of the mortgage term.

An interest-only mortgage might be worth it if you're a landlord looking for a buy-to-let property and put your profits from rental payments towards your repayment plan. It might also be worth it if you're using the mortgage to buy property as an investment and sell it on at the end of the term.

On the other hand, if you’re a first-time buyer, it probably isn’t the best idea. A financial advisor or interest-only mortgage lender will be able to offer you guidance if you’re not sure.

In reality, there are very few people for whom an interest-only mortgage is a better option than a repayment mortgage. For this reason, the FCA has guidelines on how these should be sold by lenders and brokers. But some financial firms haven’t always played by the rules.

Mis-Sold Interest-Only Mortgages

“I have an interest-only mortgage, does this mean it was mis-sold to me?”

On its own, no. The simple act of having taken out an interest-only mortgage, even with all the risks attached, doesn’t mean it was mis-sold to you.

Let’s look at the signs of mis-selling.

  • You weren't made aware of the nature of the debt. Your advisor didn't make you aware of how your mortgage would be repaid when the term ended.
  • They didn't check to see you had the means to make repayments. Your advisor didn't seek evidence that you had sufficient and reliable plans to make repayments. If you have no plans to repay your borrowing, you need to act sooner rather than later. 
  • They accepted unsuitable repayment plans as being sufficient. Your advisor accepted risky or uncertain repayments plans, such as expecting your property to substantially increase in value by the end of the term so you can sell it, relying on high-risk investments to return well or expecting a windfall like an inheritance.
  • They didn't provide you with detailed information or advice. Your advisor didn't talk you through the higher costs associated with interest-only mortgages.
  • You weren't made aware of high broker fees or extra charges. You are paying high fees or commission to your broker that you perhaps weren't told about. 
  • The mortgage term runs past your retirement age. Your mortgage ends after your retirement age, and your advisor, lender or broker didn't discuss a plan as to how you would continue to meet your repayments with reduced retirement income.

What to Do if You Were Mis-Sold an Interest-Only Mortgage

If you think you were mis-sold your interest-only mortgage, you’re not alone. UK Finance estimates there are over 1.5 million interest-only mortgages that still need to be paid off in the UK - and that many of these were taken out without a full understanding of how they work. Here’s what you can do if you think this happened to you.

Switch to a Better Deal

If you were sold an interest-only mortgage and you’re worried about meeting repayments in the future, it may be worth seeking independent financial advice. You may be able to extend the term so you have longer to save up, remortgage to get a better rate or switch over to a repayment mortgage to start chipping away at your mortgage balance.

Complain to Your Mortgage Provider

Gather up all the information you can, including all correspondence as evidence if you have it. Letting your mortgage provider, lender or broker know you are unhappy is the next step. You can use this mis-sold mortgage template letter if you don't know where to start. They have eight weeks to get back to you with either a compensation amount or a refusal.

Complain to the Financial Ombudsman

If you're not happy with the response you get from your provider, or they don't respond at all, you can escalate the complaint to the Financial Ombudsman Service. They will act as an independent party to decide whether or not you were treated unfairly, misled or mis-sold to.

Make a Claim for Compensation

If you think the advice you were given put you at risk of financial harm, you may have a case for compensation. The amount of compensation for a mis-sold interest-only mortgage depends on how out of pocket you are as a result of the bad advice or negligence.

If you'd prefer to have a professional on your side doing the talking for you to make your claim, consider seeking legal advice from a solicitor or mis-sold mortgage specialist.

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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