Mortgage errors

The news that 18,000 people were charged the wrong amount on their mortgage may not seem like that big a deal - at first sight. They weren't mis-sold a financial product or lured into taking out a loan they could not afford and - given the millions of mortgages in existence - the figures seem relatively small.

The reason it ended up getting extensive coverage owed more to the way the Yorkshire and Clydesdale banks handled the aftermath than to the error itself. It seems that the original mistake went back to 2008 when the banks' computer systems made a mistake on some tracker and discount rate mortgages on both repayment an interest-only mortgages, but it took Yorkshire and Clydesdale banks until earlier this year to spot it.

The banks say that around half of the 18,000 borrowers who are affected are being asked for an extra £25 a month - although some are having to pay much more. What's interesting...to me at least...is that they've decided not to automatically write off the shortfall, which they say on a £25 a month extra payment works out at £2 a month - so not exactly a fortune.

This isn't exactly a common problem but the last time this happened, my mortgage spy (SavvyWoman's mortgage expert Ray Boulger) tells me that the lender in question wiped off the shortfall.

Why won't Yorkshire and Clydesdale banks do the same? They say they are treating complaints on an individual basis and that they are offering compensation for those who are having problems making the higher payments. But not - it seems - for those who don't complain.

Having found out that Yorkshire and Clydesdale are happy to compensate some of its customers, I'm sure others will be tempted to complain as well. If they do complain and are not happy with the banks' response they can take their case to the Financial Ombudsman Service.

While the FOS will look at each case individually, it is more sympathetic to complaints where it was the lender's fault (which Yorkshire and Clydesdale have not denied) and where the customer couldn't have realised that a mistake had been made. This is a bit trickier, but customers shouldn't be expected to be mortgage experts (that's the bank's job) and even if your mortgage payment fell quite dramatically, at the time the error happened tracker mortgage rates were plummeting.

In these tough times I can see that it might seem hard to justify offering to pay the shortfall for customers before they'd even thought of complaining. But in terms of goodwill and loyalty, it would have been a relatively small investment. Now it's quite possible that the banks will lose a lot more money. Every case that goes to the Financial Ombudsman Service is free for consumers but costs the banks £500.

And if even 50% of the customers who aren't happy decide to switch mortgage lenders when their deal comes to an end, they could lose thousands of borrowers. It's always said that it's not the mistake, it's how you deal with it that matters. Maybe it's a lesson that the Yorkshire and Clydesdale banks could learn.

The FSA acts....at last

So, the Financial Services Authority has finally decided to act and is proposing new rules to stop mortgage lenders from piling charges and interest on borrowers who get into arrears. It's good that the FSA is acting, but shouldn't it have put these rules into place when repossession wasn't such a real threat to thousands of borrowers?

A few years ago I filmed a story for TV about a woman aged 62 who had been diagnosed with bipolar disorder. She owned her property and had paid her mortgage every month without fail. But after she went on a spending spree during one of her 'highs' she was left with debts of around £25,000.

She was advised by a broker to take out a second mortgage with a sub prime lender, which she would have to pay until she was 85 (the broker helpfully filled in her application form for her and stated that she was a self-employed cleaner, rather than the retired civil servant she actually was).

Not surprisingly she couldn't make the mortgage payments, but she did make an arrangement to pay £200 of the £300 she owed every month by standing order. And what did the lender do? They charged her a £50 arrears fee every single month (plus interest plus other random assorted fees).

I won't even begin to tell you the extraordinary way the sub prime lender tried to justify the fact that a 62-year-old 'self-employed cleaner' had mortgage that would last for 22 years. What became clear was that the lender was charging her £50 a month for no reason at all. The company didn't have to do anything to chase up the payment - it arrived on the same day every month.

As if that wasn't enough, once the arrears (largely made up of charges, interest and fees) reached around £750, they wrote to her threatening her with repossession.

If the FSA's planned rule change means people won't be treated like this in the future, it can only be a good thing. But I bet there are many others who've had similar experiences and for whom help is coming too late....