Money News
Thousands of homeowners with Abbey face the prospect of paying off their mortgages for 15 years longer than they originally thought, due to a communications error by the mortgage bank back in the late 1980s and early 1990s. That's because the bank failed to notify customers that it routinely extended mortgage terms at the time in response to increases in interest rates.
Consumer watchdog, The Financial Ombudsman Service, which adjudicates on consumer complaints, says it has already dealt with several hundred Abbey cases, with new cases continuing to be submitted. It warns however that it is imposing an October deadline for people to come forward with new cases.
Horrified borrowers are now, in some cases, discovering that their mortgage repayment period was, in effect, extended from 25 years to 40 years, thereby costing them thousands in extra payments in the process.
Monthly interest rate payments consist of interest on the loan and repayment of a portion of the capital. By failing to increase borrowers' repayments at the time they unintentionally paid off a lower proportion of the capital on their loans. The ensuing shortfall meant that for the loan to be repaid in full its term would have to be recalculated (and extended) - a point not made clear to them at the time.
The ombudsman has already ruled that between 1987 and 1993 Abbey didn't make it sufficiently clear to borrowers that mortgage terms could change. Therefore, they could be entitled to compensation.
An estimated one third of Abbey's 1.2 million borrowers had a repayment mortgage in 1993. Today, mortgages generally have fixed terms and where applicable repayments will fluctuate with interest rates.
02 July 2007 © Moneyextra.com
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