Interest-only mortgage compensation may be due to hundreds of home owners in the UK, with the Financial Ombudsman Service (FOS) reporting a spike in complaints from home owners who believe they were either misled into taking out an interest-only mortgage, or did not have the full details explained to them properly.
Interest-only mortgages, at a glance, are mortgages that allow the home owner to repay only the interest on their loan until the mortgage term comes to its end, at which point the whole amount of the loan becomes payable. The vast majority of people taking out such a mortgage fully understood these terms, and anyone taking out such a mortgage after 2008 would have undergone proper financial stress-testing by their broker or lender, with only a few future repayment strategies now accepted as reliable enough to guarantee the successful repayment of the loan.
However, things were different prior to the 2008 financial crisis, and some people were indeed encouraged by brokers who received high commissions on interest-only mortgages to apply for them without being properly assessed, or having the consequences of not being able to repay the loan properly explained. The FOS now receives hundreds of complaints relating to interest-only mortgages every year and upholds about one in five.
What kinds of situations can the FOS help with? It is useful to take a look at some of the case studies the Ombudsman provides on their website, but situations may include a home owner who was not made aware of the sale of the home as the method for repaying the loan; a home owner who is not allowed to switch to a repayment mortgage by their lender; or a home owner who bought a new-build property that has depreciated in value, with the sale of the house now unable to cover the costs of the initial loan.
The FOS emphasise that if you think you have a case, you shouldn't be deterred by an unsympathetic broker or lender who might say that you only have the right to complain about a mortgage within the first six years taking it out. The FOS say that they will investigate if they have reason to believe you were not made aware of the conditions of your mortgage or had your lender/broker check in with you about your financial circumstances within the past three years.
How to complain? Write to your broker (or lender, if you took out the mortgage directly with them) first; if they refuse to offer a resolution, contact the Financial Ombudsman by calling or writing to them.