Are you paying more than you should be for your mortgage? How do you know how much you should be paying? Without expert insight, these are hard questions to answer. And this is why there are hundreds of thousands of people being overcharged on their mortgages.
You may be overcharged on your mortgage if you frequently switch or if your lender has been taken over. Overcharges can mean you fail affordability checks when it's time to switch. You could claim a refund on your overcharged amount.
What’s worse is that sometimes when overcharging happens, the borrower is then unable to pass new affordability checks and are then prevented from switching lenders. These unlucky few are ‘mortgage prisoners’.
The Financial Conduct Authority (FCA) estimates that there are around 140,000 mortgage prisoners across the country.
But not all hope is lost. If you’ve been overcharged on your mortgage, you may be able to make a claim for compensation and get a refund. This guide looks at how to do that.
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In theory, overcharging is possible on any type of mortgage - repayment (capital and interest), interest-only and more. It’s more common among some mortgages than others, especially those where you pay a standard variable rate after an initial low-interest period. Overcharging can quickly add up in this case, especially on large mortgages.
As a borrower, you put all of your trust in the lender to calculate your repayments correctly. But there are plenty of places that, in theory, a mortgage repayment calculation could go wrong.
Some of the most common faults include:
Mortgage overcharging is most common in historical mortgages - especially those taken out before new lending rules came in at the end of 2012. People might’ve been paying more than they should at the very start of their mortgage.
Even if these issues were later rectified, there have been cases where the lender did not make the borrower aware of the mistake.
Your original mortgage lender has been taken over. This is particularly common with lenders that have folded since the financial crash in 2007/2008. For example, many people who had mortgages with Northern Rock have ended up stuck on their expensive, standard variable rate ever since and are unable to remortgage due to failing affordability checks.
Your borrowing rates have changed. If you’ve frequently switched between fixed rates, standard variable rates and tracker rates throughout the term of your mortgage, errors are more likely to happen. If rate changes haven’t been applied to your repayments correctly, then you could’ve been paying off more interest than you should’ve been.
You’ve switched from a repayment to an interest-only mortgage (or vice versa). Any changes to the type of mortgage you have can lead to interest overpayments, especially if there was overlap in the date when the mortgage type changed and when your monthly repayment was due. This might not be a lot, but it’s a payment you didn’t need to make.
You’ve ended up in arrears. Although not a sure sign of being overcharged, FCA investigations have revealed that some lenders aren’t correctly following guidelines around late payments and arrears. This could mean that you’ve been charged inappropriately.
Your bank tells you. If a lender realises they’ve made a mistake at some point with your repayments, they may get in touch to tell you directly. It’s worth bearing in mind that you still could’ve been overcharged even if your bank hasn’t told you directly.
If you think you’ve been overcharged on your mortgage, there are steps you can take to firstly check, and then fix the issue.
It’s possible that overpayment or repayment miscalculation could’ve happened accidentally and you simply aren’t aware of it, with the amount of complex paperwork that comes with a mortgage, who could blame you. That’s why if you think you might be being overcharged on your mortgage, you might want to ask a professional to audit your mortgage for you.
A mortgage audit just means going through your finances with a fine-toothed comb to spot any anomalies where miscalculations or excessive charges were made. If the audit reveals any evidence that you’ve been overcharged, you have a case to claim for compensation.
If you received a letter from your mortgage lender telling you that they’ve overcharged you, they’ll cover the review for you. Don’t fork out for an additional mortgage audit in this case. They’ll likely inform you of exactly how much you’ve been overcharged in a follow-up letter.
This amount will be refunded to you by the bank directly in this case. Depending on the bank and how much you were overcharged, it’s not uncommon for them to offer you a compensation on top of this amount. This can be an extra 10-15% of what you are owed.
Even if you’ve got your money back from the bank, it doesn’t have to stop there. If you’ve been put under financial pressure as a result of being overcharged, the damage may extend past the amount you overpaid in lost opportunities or the distress it caused. This means you can press the bank for more compensation to cover being out of pocket for that too.
This process starts with a letter sent to your mortgage lender. They are given eight weeks to respond with either a compensation figure or a refusal, at which point you can take the case to the Financial Ombudsman Service if you’re unhappy with the response you received. This is a process you can do yourself or enlist the help of a solicitor to handle the claim for you.
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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