Abbey's Flexible Mortgage Slash And Grab

[interestrateripoff]

Can't see this posted anywhere taken from the frontpage.

http://www.guardian.co.uk/money/2009/jun/0...e-mortgage-deal

Abbey was this week accused of "unfairly" slashing the value of homes, and using this as an excuse to "grab" thousands of pounds that its mortgage customers had stashed away for the future.

In the last few weeks, many Abbey flexible­ mortgage holders have received a bombshell letter telling them that ­because of falling house prices, the bank has reduced the estimated value of their property.

That has a dramatic impact on the way people use the mortgage. In some cases it means thousands of pounds paid into their account – which they were perhaps hoping to dip into at a later date – has suddenly been whipped away. That means they are unable to access this money, which they might have been planning to use for a holiday or new car. It is thought as many as 8,000 people have received letters telling them that some, or all, of this cash has been removed. Justin Cuckow is one; he claims the Spanish-owned bank has behaved "outrageously".

By making a number of overpayments, he had built up £10,300 of what Abbey calls "available funds", that he could use in future to take a payment holiday or pay less each month, or to spend on whatever he wanted.

He thought he was behaving prudently­ by shovelling in the extra cash. So he was shocked to receive a letter a few days ago telling him that, as part of a review of all Abbey's flexible mortgage accounts, the bank had reduced the estimated value of his flat from £143,000 to £130,000. That automatically reduced his credit limit by a similar amount, "which reduces your available funds to £0.00". The letter then rubbed salt in the wound: "Please note that if house prices increase in the future, we will not automatically increase your credit limit."

In other words, the £10,300 that Cuckow had carefully built up has been removed at a stroke.

Abbey has around 200,000 flexible mortgage customers. These deals give you the freedom to overpay when you want to, then underpay or take a break from your monthly payments if your circumstances change. But with Northern Rock also tightening up the rules on its flexible mortgages, some of these deals are looking a lot less user-friendly now that the economic backdrop isn't so rosy. Ray Boulger at broker John Charcol says if borrowers don't have confidence that they can use these home loans in the way they expect, "it destroys the whole concept of having that type of mortgage".

It doesn't help that Abbey's flexible loan is a pretty complex beast. It is made up of three parts – the mortgage loan, a savings pot, and your "available funds". The available funds are the difference between what you've borrowed (ie, the loan) and the maximum you are allowed to borrow (your credit limit). Abbey describes this facility as like an overdraft; you can "draw down" funds up to the maximum as needed. If you overpay, you can put this money into your savings pot, which is offset against the loan, or do what Cuckow did – pay it off your mortgage,­ thereby increasing the available­ funds.

He was surprised to discover the new figure for what his one-bedroom flat is allegedly worth was an automated valuation­ based on Halifax's house price index­, which Abbey said, "provides us with an updated estimate each quarter of the purchase price of properties in your region".

After Cuckow complained, Abbey dispatched a surveyor to carry out a formal valuation, which put the value at £145,000 – some £15,000 more than the original valuation (and £2,000 more than he paid for it), and suggests the bank was wrong to swipe all his available funds.

The first margin calls from the banks?

[stu2006]

Im not sure i understand this correctly so correct me if Im wrong..You have a mortgage of X amount per month. With this mortgage you have the option of overpaying and that amount is stored to be used as you please in the future..However because house prices have reduced they just take that off you? Is this legal? At the end the borrower still has to pay the mortgage off..I'm confused.....

[interestrateripoff]

Im not sure i understand this correctly so correct me if Im wrong..You have a mortgage of X amount per month. With this mortgage you have the option of overpaying and that amount is stored to be used as you please in the future..However because house prices have reduced they just take that off you? Is this legal? At the end the borrower still has to pay the mortgage off..I'm confused.....

It depends on the small print.

Anyone got access to it?

[Bloo Loo]

course, if you pay 10K off a mortgage early, the bank is losing the interest on 10K, but in effect, this scheme allows you to MEW it back.

so the bank, as they always do, have taken away their toys and gone into a sulk.

clearly, if house prices are falling, the available MEW has to reduce.

lucky for the people in this story, 15% HPI is back and the customers will be able to MEW again for the holiday/car/extension. good news indeed

[R K]

IIRC (can't remember the case law) banks have pretty much always had the right to offset credit balances against debit balances in different accounts, which is effectively what they're doing.

I'd say it's not really a margin call as such since the already had the money in the form of a voluntary over-payment and simply used a revaluation of their security to prevent it being removed.

If it were me, I'd keep savings in a different bank/group to debts.

[impatient_mug]

This is one of the reasons I've stayed away from offset mortgages and keep my savings in a different bank. You have to weigh up the interest differential you're losing out on thru having savings in a savings account rather than in the mortgage account against the fact that the banks can help themselves to money you thought were savings at a random whim.

[Rare Bear]

course, if you pay 10K off a mortgage early, the bank is losing the interest on 10K, but in effect, this scheme allows you to MEW it back.

so the bank, as they always do, have taken away their toys and gone into a sulk.

clearly, if house prices are falling, the available MEW has to reduce.

lucky for the people in this story, 15% HPI is back and the customers will be able to MEW again for the holiday/car/extension. good news indeed

But in fact an offset mortgage can make sense. If you have 10k spare in a deposit account you get a derisry amount of interest which is taxed. If you put into an offset mortgage you pay less on 10k less and you can be sure that the bank will be cahrgeing more for you to borrow 10k than it will give you to lend it 10k. OK, due to the rapid unreal recent drops in interest a few people are paying very little for their mortgage money but in general it is true.

The situation with the Abbey of course is that because the LTV has become less attractive the mortgage which was once flexible has become a mortgage wher some of the principal has been paid off early.

[ralphmalph]

course, if you pay 10K off a mortgage early, the bank is losing the interest on 10K, but in effect, this scheme allows you to MEW it back.

so the bank, as they always do, have taken away their toys and gone into a sulk.

clearly, if house prices are falling, the available MEW has to reduce.

lucky for the people in this story, 15% HPI is back and the customers will be able to MEW again for the holiday/car/extension. good news indeed

It is not MEW at all. MEW is increasing the value of your mortgage as your house price increased.

These type of products were promoted to get people to move thier savings to the mortgage company. You pay your mortgage interest and repayment ammount monthly. What the mortgage companies promoted was that if you had a savings account that was paying interest, interest would be taxable. Put your savings in your flexible mortgage account and it would reduce the ammount of interest owed which meant your normal monthly mortgage ammount would charge less interest hence you paid off more of the principal every month, hence increasing your savings and you paid no tax.

They also said that you could withdraw your "savings" at any time immediatly. It seems that Abbey have changed the rules.

[Bloo Loo]

But in fact an offset mortgage can make sense. If you have 10k spare in a deposit account you get a derisry amount of interest which is taxed. If you put into an offset mortgage you pay less on 10k less and you can be sure that the bank will be cahrgeing more for you to borrow 10k than it will give you to lend it 10k. OK, due to the rapid unreal recent drops in interest a few people are paying very little for their mortgage money but in general it is true.

The situation with the Abbey of course is that because the LTV has become less attractive the mortgage which was once flexible has become a mortgage wher some of the principal has been paid off early.

thats right, offsetting a mortgage, whilsy sensible for savers, is bad for banks. thats why such an obvious product didnt make an appearance until recently, when the need to sell mortgages, any mortgages, at any terms, was a requirement of a profitable bankers bonus.

[ralphmalph]

thats right, offsetting a mortgage, whilsy sensible for savers, is bad for banks. thats why such an obvious product didnt make an appearance until recently, when the need to sell mortgages, any mortgages, at any terms, was a requirement of a profitable bankers bonus.

Offset mortgages have been around for 10 years at lease.

[Rare Bear]

thats right, offsetting a mortgage, whilsy sensible for savers, is bad for banks. thats why such an obvious product didnt make an appearance until recently, when the need to sell mortgages, any mortgages, at any terms, was a requirement of a profitable bankers bonus.

But on the good side bad for the taxman.

[Bloo Loo]

Offset mortgages have been around for 10 years at lease.

exactly. 10 years.

and mortgages have been around for how long?

[durhamborn]

Here we go again. Get a piece of news and low it out of all proportion.

I can tell you about this as I have the same deal.

When houses were rising fast some lenders give you what they called a mortgage pot. Be it money you'd paid off or equity release.

Mine for example was £20,000. I was sent a cheque book and could just write myself out a cheque up to £20,000 which was paid back at current standard rate. Could either just pay the interest and square it up at end of mortgage or work out how much it would be to pay off and finish same time as mortgage. Up to you.

I haven't checked for a couple of years as I haven't needed the money but I wouldn't be surprised if the building societies have put a block on that for now. Saying that I might be wrong and the dough is still there.

No big deal. Just a form of equity release maybe dried up. Won't effect anything.

There is no such thing as equity release,none,its debt,more debt.The idea is you buy an asset with borrowed money then pay it back so you own the asset,then live in said asset free.

Equity release is no such thing,.Its simply more debt,real amounts on an asset that moves up and down in price.

The only time you you get equity from a house is if you sell it and you get more than the debt secured on it.

You do not get equity from it while still living in it.Your simply taking on more debt.

You wouldnt be surprised if building societies have put a block on it?.They havent.The market has by saying houses are worth 20%+ less than a year ago.

[dolce vita]

I dont think the person in the OP has an offset mortgage - merely a flexible mortgage which allows overpayments to be taken out at some future date.

These are 2 different things.

Basically, what his overpayments have done is stop him slipping into negative equity.

[Bloo Loo]

A cheque book into the equity of your house. That is like crack for debt junkies.

Not surprised they are taking it away from you.

EDIT: Talk to Mr Mortgage about HELOCS.

instant BMV ....on your own house FFS.

[Sybil13]

Anyone care to explain how Abbey can have valued it £15000 under the price paid yet send a surveyor and get value of £3000 more than the buyer paid?

[Bloo Loo]

Anyone care to explain how Abbey can have valued it £15000 under the price paid yet send a surveyor and get value of £3000 more than the buyer paid?

Sibleys Surveyors of Maidstone I beleive.

there is no sale involved, therefore the value remains as at the last highest price guessed.

[darwin]

Here we go again. Get a piece of news and low it out of all proportion.

I can tell you about this as I have the same deal.

When houses were rising fast some lenders give you what they called a mortgage pot. Be it money you'd paid off or equity release.

Mine for example was £20,000. I was sent a cheque book and could just write myself out a cheque up to £20,000 which was paid back at current standard rate. Could either just pay the interest and square it up at end of mortgage or work out how much it would be to pay off and finish same time as mortgage. Up to you.

I haven't checked for a couple of years as I haven't needed the money but I wouldn't be surprised if the building societies have put a block on that for now. Saying that I might be wrong and the dough is still there.

No big deal. Just a form of equity release maybe dried up. Won't effect anything.

I don't think it's being blown out of all proportion, Sibley.

In the example that was given and as I understand it, the borrower had made overpayments and these funds were linked to the mortgage but being held in an ancillary account. They could either go towards reducing the mortgage at an appropriate time, or the funds could be withdrawn if desired. Providing, of course, there were no arrears.

What's happened is, Abbey, of its own volition, has decided to go ahead and use those funds to reduce the total amount owing, which is what Abbey wanted, but not what the customer wanted.

Sounds pretty galling to me.

[Bloo Loo]

I don't think it's being blown out of all proportion, Sibley.

In the example that was given and as I understand it, the borrower had made overpayments and these funds were linked to the mortgage but being held in an ancillary account. They could either go towards reducing the mortgage at an appropriate time, or the funds could be withdrawn if desired. Providing, of course, there were no arrears.

What's happened is, Abbey, of its own volition, has decided to go ahead and use those funds to reduce the total amount owing, which is what Abbey wanted, but not what the customer wanted.

Sounds pretty galling to me.

sounds like normal bank behaviour to me.

Add in the stealthy reduction in savers interest rates and you have the set of scams.

[darwin]

sounds like normal bank behaviour to me.

Add in the stealthy reduction in savers interest rates and you have the set of scams.

Yes, you're quite right.

Just a regular day at the office really.

[boredwithforum]

I dont think the person in the OP has an offset mortgage - merely a flexible mortgage which allows overpayments to be taken out at some future date.

These are 2 different things.

Basically, what his overpayments have done is stop him slipping into negative equity.

Ive got an Abbey Flexible Mortgage, currently running at 1.29%, it tracks the base rate +.79%. Basically what ever money you put into the savings pot is reduced off the mortgage and therfore only pay interest whats left.

So in theory the mortgage is a flexible/offset all in one.