by Paul McBeth
Disputes over mortgage finance as well as debit and credit issues make up half the workload at the Banking Ombudsman's Office. We check out some of the more ornery cases she's had to deal with lately, in the hopes they'll give you some pointers for your own dealings with mortgage lenders.
Read before you sign
A couple had a fixed-rate housing loan with a slight difference: they'd managed to negotiate the removal of a standard clause in the loan agreement that lets the bank charge penalty interest on early repayment.
The period of the loan was nearly up and the couple was negotiating a new fixed-rate period. At a meeting with the bank (at which they were in a hurry), they said they understood that the only point being negotiated was the interest rate and that the penalty clause would again be deleted.
The couple signed the variation agreement without reading it, but discovered later on that it still contained the penalty clause. The bank refused to remove the clause on the grounds that they should have read the loan agreement first (it was only a page long and in plain English) and because the clause was included in their standard loan documentation.
Banking Ombudsman Liz Brown said that the bank's representative should have checked the original loan agreement when drafting the variation and should have explained any inconsistencies. However, she said the right to repay early was clearly important to the couple and she would have expected them to read the agreement and notice the clause, even if they were in a rush.
The result: the bank made a goodwill offer towards the couple (to restructure at a lower interest rate for a shorter term), but they chose instead to repay the loan at a cost of around $5,000.
Watch out when you're relying on a mortgage approval certificate
Another couple had loans secured over two properties and wanted to buy a third, planning to convert this into two flats. Their bank approved a top-up loan for some of the extra amount they wanted to borrow and issued them with a Mortgage Approval Certificate (MAC), valid for 90 days. It included a condition that, if the couple's situation changed significantly between the date the MAC was issued and the date of draw-down, the bank reserved the right to renew the loan and either amend the terms or withdraw the offer.
The couple's offer to buy the third property lapsed. However, two months later, they entered into an unconditional contract to buy a section on which they planned to build a new home. In doing so, they relied on the original MAC.
But when they formally applied for the loan, the bank turned them down saying that their new proposal didn't meet its lending criteria and invoking the "significant change" condition in the MAC.
The upshot: the Banking Ombudsman agreed with the bank that there had been a significant change in the couple's proposal. A property conversion (the couple's original plan) is a significantly different proposition from building a house as the borrower can offer the existing property as security. When building a house, the security is offered in stages as the building is constructed.
Paul is a staff writer for Good Returns based in Wellington.
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