“It is easier to rob by setting up a bank than by holding up a bank clerk”- Bertolt Brecht
In early March this year a good friend of mine came to me looking for some advice on an investment mortgage she had with a financial institution here in Ireland.
Her question regarded her three-year fixed mortgage rate deal which was about to expire. She wanted to know if she should fix the repayments again or whether she should opt for repayments based on a variable rate.
She had received no correspondence from her lender and given that her existing agreement was due to finish in a month’s time my first suggestion was for her to contact her lender and ask what options were open to her.
So she called the bank and was advised by one of their representatives that her mortgage would automatically be reverting to their tracker rate which at the time was 2% (1.25% above the then ECB base rate)
While this was welcome news, she was dismayed upon reflection that she was never told; nor was it ever pointed out to her that the variable rate that applied to her mortgage was based upon a tracker method of repayment.
You see back in February 2012 she received a letter from the same bank with the options that were available to her back then, but the description of the variable option open to her in the letter did not explicitly refer to it as a tracker variable rate – it just said variable rate. So she assumed the rate on offer was a standard variable one, which is why she opted to fix her repayments.
Obviously had she known and it had been pointed out clearly and in simple terms from her lender, she would have opted for the tracker rate.
What made matters worse, is that, the ECB base rate reduced significantly from April 2011 to July 2012 and had she known that her mortgage was a tracker, she would have benefited from each rate reduction, whereas she was stuck at a much higher fixed rate which has ended up costing her significantly more.
To make matters worse, this anomaly did not just apply to the period between February 2010 and now, it applied to the period before February 2010 where again she was on a fixed rate because she did not want to be vulnerable to ever increasing variable rates - which is the impression she gained from the bank.
I felt that as a duty of care, her lender had let her down very badly in not pointing out unambiguously when providing her with options once her fixed rate was expiring that the variable rate that applied to her mortgage was a tracker variable rate. Non-financial people rightly assume that a variable rate is completely different to a tracker rate where largely the rate is determined by their lender, but once they see the word tracker, they immediately know what it is and their decision making would change accordingly, as my friend’s would have.
Had they clearly pointed out in their correspondence that her variable rate was in fact a tracker rate, she would not have opted to fix her mortgage at any point, but because they didn’t she has paid thousands more than she should have.
So, with my help we sent a letter to her lender outlining all of her concerns and a time line of events so to speak of what happened and enclosed every letter the bank ever sent her.
Our objective was simple - she wanted to be compensated for the amount she paid based on the fixed rates she had chosen versus the tracker rate she would have paid had the bank clearly pointed out to her that she was on a tracker rate.
The bank replied to her within a couple of weeks and their response was incredible, it really was. They chose not to answer any of the questions put to them and I think this was very deliberate.
They were quoting this act and that act and the wording of the letter was very confusing and difficult for even me to read.
I think the bank’s objective was that she would receive the letter, not have a clue what they said to her and that she would hopefully put the letter in the bin and that would be that. Big mistake.
We responded to the bank and said they did not address any of our questions and that they need to re-read our first letter and if they didn’t respond satisfactorily and deal with the specific issues we asked them to, we would take it up with the Financial Services Ombudsman.
They still didn’t so we did go to the Ombudsman and made a complaint to them.
Anyway, to cut a long story short, I got a message on my phone on Tuesday afternoon from my friend asking me to call her as soon as possible because she received a letter from her lender that morning.
I called her and her first words were “you won’t believe what has happened”. She received a letter from her lender that morning stating that they were willing to compensate her for their negligence in not pointing out in clear unambiguous terms that her variable rate was in fact a tracker one.
And they even calculated and showed her the difference on a daily basis of what she paid and what she should have paid.
The difference and the amount they were going to refund her was €16,797.35.
Of course this was a great result and she was obviously delighted but you know this was her money to which she was entitled.
She was just put through the ringer to get it and nearly gave up when she got that first letter from them.
Which got me thinking about how many more mortgage customers made the same decisions as my friend did and ended up paying much more than they needed to or maybe continue to?