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Mortgages Watchdog: "Talk to your creditor now about pure interest rate lending or run the risk to lose your house".
While the number of low-interest mortgage borrowers has fallen since the onset of the global economic downturn, 1.7 million credits - about one in five of all mortgage types - are not yet due. Much of these credits are due in the 2030s. Telegraph Mortgage Advice professionals can advise you on your next mortgage for free consultation on your next step.
The EZV numbers show the savings to be achieved when changing to a redemption mortgage. Theoretically, if a pure interest mortgage is not paid back at the end of the loan period, the creditor can enforce the sell-off of a real estate object. Number of interest-linked loan defaults dropped from around 2.7 million in 2010 to 1.6 million today - but DCV said it did not know how many were the consequence of foreclosure auctions.
It has also acknowledged that it does not know how many pure interest clients are trapped in the "standard interest rates " (SVRs) of creditors. The group, sometimes referred to as "mortgage prisoners", has been paying off additional interest for several thousand years after receiving no new business at the end of the initial term. Trussle CEO Ishaan Malhi said that pure interest clients "are set for a spell of distress and concern as soon as interest rates rise again".
"It is an emerging problem in the home ownership arena, and borrower will need assistance and direction to prevent this from turning into a full-blown emergency. Der Watchdog stressed how some interaction between creditors and clients implied that creditors were abandoned with the wrong perception that they had appropriate schemes.
A bank must repay the customer interest at a rate below the rate of the customer mortgage - Publikationen
The Arbitration Court issued a final opinion on a consumer claim against a Netherlands banking institution on 31 March 2016. Consumer had concluded a mortgage loan contract with the institution comprising a so-called "roll-over loan" in CHF (loan). Interest on the loan was calculated on the London Interbank Offered rate for CHF Libor with a 0.7% premium.
In early 2015, the Confederation gave up the stable currency parity of the CHF against the euro. As a result, the value of the CHF against the Euro appreciated, increasing proportionally the euro value of the nominal amount of the loan. By 28 January 2016, the one-month CHF Libor fell to -1.016%, so that the interest on the loan fell to -0.316%.
Here the Bank sent a notice to consumers stating the actual interest on the loan and that the Bank was applying a 0% ceiling to the interest on the loan. Consumers have lodged a claim with the arbitral tribunal. Consumers argued that the bank should charge the interest to be used without using the 0% lower limit of the interest rates.
In their allegation, they breached the agreement because the loan did not preclude the bank from paying interest at a loss. Consumers also claimed that by fixing a floor interest of 0%, but without an upper ceiling for the nominal amount of the loan to be increased as a result of currency movements, the bank had induced consumers to assume both the interest and currency risks of the loan.
However, the bank disagreed that there was no reference in the loan to the fact that the bank could be obliged to repay consumers adverse interest rates. This loan related only to a consumer liability. According to the Bank, the disbursement of interest to consumers is not compatible with standard bank practices and must be expressly accepted (which it is not).
Lastly, the Bank claimed that consumers did not adequately interpret the terms of the loan in order to give them a right to pay interest at a loss. There was no provision in the loan excluding interest at a loss, nor was there any provision fixing the floor at 0,0 per cent.
Therefore, the Arbitral Tribunal found that it had to judge on what a sound understanding of the loan was based: i) the terminology and type of loan; and ii) what the parties could reasonably have expected of each other in the given circumstance. Arbitration disagreed with the Bank's reasoning that the paying of a penalty is incompatible with the operation of the bank system.
In the past, there have been cases of adverse interest rates. However, the fact that the adverse interest rates were considered highly unlikely when the loan was taken out did not mean that a adverse interest rates was completely unpredictable. Therefore, the Arbitral Tribunal found that not taking into account a debit interest on the loan was a contingency which should be taken by the bank as a pro and by the originator of the loan.
In addition, the arbitral tribunal found that the bank itself was in a position to fund the loan each and every day against the CHF Libor rate in force at the time and thus obtain its own remuneration for the loss of interest. Therefore, the arbitral tribunal has not seen how the paying of adverse interest would harm the bank or the overall functioning of the banking system, as the bank argues.
Lastly, the Arbitration Tribunal found that the loan had highly speculative features for both the bank and the consumers and that both sides had agreed to these exposures. There were no limitations on these exposures in the loan. In attempting to keep the interest rates to a level of a bare zero, the bank interpreted the loan in a way that was detrimental only to consumers, without having any reason to do so on the basis of the loan or otherwise.
However, the arbitral tribunal found that the loan should be construed as creating a liability for the bank if the CHF Libor interest rates are below -0.7%. It was instructed to retroactively repay all interest to consumers, as the interest rates became negatively charged. At the time a loan contract was signed, very few, if any, bankers or customers would ever expect to receive adverse interest payments.
While this fact in itself should be enough to reject a claim for adverse interest, the lack of agreements for this purpose gave cause for juridical discussion. Most of the result of this case is likely to have been affected by the type of court that offers consumer equitable redress.