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Ask James Mather Your Own Question
James Mather
James Mather,
Category: Law
Satisfied Customers: 22629
Experience:  Senior Partner at Berkson Wallace
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We have a part interest only and part repayment mortgage. The

Customer Question

We have a part interest only and part repayment mortgage. The interest only part was due to be paid off by endowment policies however now they have matured they did not fully cover the cost of the interest only part of the mortgage. My lender has now added all of the shortfall to our repayment part part of the mortgage without our consent which means we cannot pay the full monthly repayments proposed. Can they legally do this without our consent as we were proposing to use other means to pay off the shortfall before the end of the complete mortgage term.
Any advice would be gratefully received.
Anthony Seymour
Submitted: 4 years ago.
Category: Law
Expert:  James Mather replied 4 years ago.

How long have you had this mortgage?

Have you paid the endowment proceeds such as they were to the lender? How much shortfall?

Customer: replied 4 years ago.

We have had this mortgage for approx. 15 years.

We have paid most of the endowment proceeds to the mortgage company however there is still a shortfall of approx. £25,000. The house is worth approx. £440,000 and the repayment part of the mortgage is approx. £80,000.

Expert:  James Mather replied 4 years ago.

Thank you. I don't know when you became aware of the possibility of a shortfall
but 15 years ago you agreed to repay the
interest only part of the mortgage in another 15 years. That time is now.

You are therefore in breach of your mortgage terms and conditions by not
doing so. In fact, you are actually quite lucky because they do not have to add
the interest only some to the capital and interest payment, they can simply sue
you for the shortfall and if necessary, make an application to court for
possession of the property.

There are many borrowers in a worse situation than you which have 100%
interest only mortgages and although some lenders have agreed to extend the
period of interest only in order for the borrowers to try to refinance, many of
them are not able to do so and are threatened with legal proceedings.

To answer your question, they are only allowed to add the interest only
part onto the capital and interest part of the mortgage conditions allow for
it. However if they are not allowed to do that and they have done it, I can
tell you that they will be under no obligation to extend the period of interest
only and they would be looking for immediate repayment of that.

On these facts, I am afraid this is one of those that I would not be making
too much noise about otherwise, they will simply press you extremely hard for
the shortfall.

The only way out of this is to explore the possibility of refinancing with
another lender which may agree to do part interest part capital repayment but,
you are going to have to find a repayment vehicle to repay the interest only

The final solution which is probably not what you want is to simply sell
the property.

I wish I could give you better news and I appreciate that this is not the
answer you wanted but there is no point in me misleading you.

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Customer: replied 4 years ago.

I did some time ago when I knew the first endowment would not meet its required maturity get the mortgage company to extend the interest only part of the mortgage to the end of the repayment part of the mortgage at 2018.

How does this have an effect on things and what would you now advise me to do.


Expert:  James Mather replied 4 years ago.

In which case, they will argue that you knew this some time ago and you
should have made arrangements between some time ago and now to repay the
interest off. The reason you have a problem now is that you are being asked to
pay the outstanding interest (on a capital and interest basis) over a five-year
period between now and 2018. If you had gone to capital and interest some years
ago when the shortfall had first become apparent, you will be paying less now
of the 25,000 every month.

It doesn't affect my uncertain I am afraid. Sorry

Customer: replied 4 years ago.

But what if I can prove to the mortgage company that I intend to pay off the shortfall before the end of the mortgage period either by installments, a pension lump sum or by selling the house when it is convenient.

Expert:  James Mather replied 4 years ago.

They are likely to take no notice because you have had some years to do
that and haven't made those arrangements. But by all means ask.

With regard to the pension lump sum which may not have been available
before now, you would need to produce proof of what the tax-free sum of cash
would be and you would need to undertake to pay that on a particular date.

However you are still in the hands of the lender and they are under no
legal duty to do anything to assist. They are under a moral duty and the
government guidelines are that they are to take a softer route but it is
unlikely that they would be required to do any more than convert you from
interest only to capital and interest.

I really cannot see a legal way round this for you

Customer: replied 4 years ago.

How does the fact that the mortgage company has just done this increase in monthly payments without any consultation with ourselves meaning that we cannot meet the monthly payments? Surely this cannot be legal if it means that we will now be repossessed without any chance to provide alternative payment possibilities.

Expert:  James Mather replied 4 years ago.

Even if they are not allowed to do it you are contractually bound to pay the full lump sum shortfall. By all means take legal action and if you win, make sure that you have the £25k because you will be shooting yourself in the foot.

Sorry, but that is the situation. I cannot give you the answer that you want.

Customer: replied 4 years ago.

What if I suggest to my lender that we increase the term of the mortgage by another 5 years to 2023 and lump all of the shortfall into the overall repayment mortgage. This will take the mortgage term over my 65th birthday however my wife is not 65 until 2028 and we both intend to continue working to this time anyway.

Expert:  James Mather replied 4 years ago.

That is certainly worth a try. Some lenders will agree to take a mortgage
to age 70 (I have one).

I would do it in writing however