Sarah contacted us after her lender refused to switch her mortgage to interest only following her redundancy.
What happened
Sarah lost her job and was struggling to pay her mortgage. Her lender agreed to switch the mortgage to interest only for six months. This gave Sarah time to look for a new job. The lender explained the mortgage would switch back to repayment after six months. Sarah’s payments would also increase from that point, to cover the capital she hadn’t repaid during the six months.
At the end of the six months, Sarah was still experiencing financial difficulties. She contacted her lender and asked whether the mortgage could continue as interest only for longer – or even permanently. The lender refused her request.
Sarah felt she had been treated unfairly and that her lender hadn’t considered her circumstances. She had lost her job, which was something out of her control, and was trying her best to find another one.
Sarah complained to the lender, but she was unhappy with its response. She then contacted us and made a complaint.
What we said
We saw that the lender had offered Sarah a six-month switch to interest only when she first asked.
This was something most lenders had agreed to do under the government’s Mortgage Charter to support borrowers with cost-of-living problems. Because it involved a temporary change to the mortgage terms and conditions, it meant Sarah didn’t go into arrears. So, there was no impact on her credit file.
At the end of the six months, when things hadn’t improved for her, the lender asked Sarah about her income and outgoings. It also agreed to offer her a reduced payment plan for a further six months while she carried on looking for another job. But it wouldn’t agree to extend the interest only switch and the new payment plan would be treated as arrears and show on her credit file.
Sarah had no savings pot or investments to help her repay the capital at the end of the term. On that basis, we didn’t think it was fair to expect the lender to switch the mortgage to interest only permanently.
Under the Mortgage Charter, six months was the maximum time a mortgage could be temporarily changed to interest only. But once the six months had expired, the lender didn’t expect Sarah to start making the full payments again. Instead, it agreed an affordable payment reduction with her. And it correctly explained that, because she wasn’t paying the full amount, this meant she would go into arrears.
We did not uphold Sarah’s complaint, because the lender had offered Sarah reasonable help. We said that if the mortgage still wasn’t affordable at the end of the payment reduction, Sarah and her lender would need to work together and try to agree a way forward. This might include extending the arrangement, supporting her to repay the arrears, or giving her time to look at other options such as selling the property.