Posted on 22 February 2011 by barrie rush
I am contacting you on behalf of my daughter, she was on a fixed mortgage in 1998 and when interest rates went down to 0.5% she still ended up paying over £600 per month on interest only, on £114,000 mortgage. I think she has paid over £400 per month to much, but the mortgage company refuses to listen. This has caused her to enter into an IVA as her income dropped. I thought the idea was to help the hard up when interest rates dropped, can you advise me please?
This is the nature of Fixed rate mortgages and at any time it is a judgement of whether the security of knowing what your payments will be is worth more than the risk of rates rising or falling. In 1998 Bank rates had slowly increased from 5.13% in 1994 to 7.25% and Fixed rates were a popular choice to try and guard against future rises.
Whilst your daughter's mortgage was affordable at the time, it is her drop in income and not the movement of interest rates which have led to her current situation. I don't know what action was taken at the time, but Lenders have a duty to help people in this situation and will often allow either a temporary reduction in mortgage payments, a payment holiday or allow them to switch to interest only. However, your daughter has entered into a binding contract with the mortgage lender and ultimately it is up to her to make sure payments are met.
If she has not already done so, I recommend that your daughter speaks to Citizens Advice or the Consumer Credit Counselling Service. Both of these organisations have trained advisers who can help people in your daughter's position. They can help her prioritise her payments so that she has the best chance of keeping a roof over her head. There are other less scrupulous organisations around who will charge a fee of up to 2 months payments and leave her in a far worse position.
Your daughter should also ask for a copy of her Lenders complaints procedure. This will set out the process for making complaints and once this has been exhausted explain how to make a complaint to the Financial Services Ombudsman.
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