SCOTTISH WIDOWS BANK MORTGAGE CONDITIONS 2017
PLEASE READ WE KNOW THAT HAVING TO READ A LEGAL CONTRACT CAN BE OFF PUTTING, SO WE HAVE DECIDED TO DO THINGS DIFFERENTLY. THIS BOOKLET CONTAINS: A brief explanation of what makes up our agreement with you for your mortgage loan. A list of what the main points in the Chapters of this booklet cover: this will give you a general awareness of where you will find particular information in this booklet. Our Mortgage Conditions: This part of the booklet consists of short and simple Chapters giving you details of how your mortgage loan will work. For properties in Scotland: The standard conditions, which apply by law. So far as the law allows, our Mortgage Conditions apply over the standard conditions if there is a conflict. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE 1
WHAT MAKES UP OUR AGREEMENT FOR YOUR MORTGAGE LOAN? IF YOU HAVE A MORTGAGE LOAN WITH US, WE WILL GIVE YOU A LOAN AND YOU WILL GIVE US A MORTGAGE OVER YOUR PROPERTY (WHICH WE CALL THE MORTGAGE ). THE MORTGAGE IS A FORM OF SECURITY FOR REPAYMENT OF YOUR LOAN AND FOR PAYMENT OF OTHER THINGS TO DO WITH YOUR LOAN. WHAT IS YOUR LOAN? Your loan is the total of the money we lend you at the start of our agreement plus any money we lend you at other times under our agreement. It does not include interest, charges or costs. WHAT IS OUR AGREEMENT FOR YOUR MORTGAGE LOAN MADE UP OF? This booklet. Any offer letter we give you for your mortgage loan. We will give you an offer letter before we first give you your loan, and we may give you further offer letters later on if we agree to changes to our agreement. The mortgage deed. This covers the mortgage security we take over your property. For properties in Scotland it is called a standard security, but to keep things simple, when we talk about a mortgage deed in our agreement we will also mean the standard security. Any other agreement you make with us to do with your mortgage loan, for example, where we agree to a change to the time period in which you must repay what you owe, without giving you a new offer letter. Our agreement will last until you have paid us everything you owe under our agreement and we no longer have the mortgage over your property. WHO IS OUR AGREEMENT BETWEEN? us, Lloyds Bank plc, trading as Scottish Widows Bank ; and you, the person (or persons) named in the mortgage deed as the borrower (or the debtor if your property is in Scotland). If more than one of you is borrowing from us, our agreement applies to all of you together and to each of you on your own. This means that we can, for example, require just one of you to make the payments due under our agreement, or require some or all of you to make the payments together. Unless you give us notice to instruct us otherwise, if more than one of you is borrowing from us: we do not need to obtain agreement from all of you to make changes to this agreement. We can instead rely on one of you agreeing to the proposed changes as agreement by all of you; and we will accept signatures, instructions or notices from one of you as signatures, instructions or notices from all of you. We have tried to keep our agreement simple, but for the more complex areas you can ask your solicitor or licensed conveyancer to explain anything you do not understand. 2
WHERE YOU CAN FIND THE DETAILS THIS IS A LIST OF THE MAIN POINTS COVERED BY THE CHAPTERS IN THIS BOOKLET, TO HELP YOU WORK OUT WHERE YOU MIGHT FIND DIFFERENT THINGS. TO KEEP THE LIST SHORT, IT DOES NOT LIST EVERYTHING, OR SUMMARISE THE BOOKLET OR GO INTO THE DETAILS (FOR WHICH YOU NEED TO READ THE CHAPTERS THEMSELVES). What, when and how you will repay What is in your offer letter Main points covered You must pay everything you owe by the end of your mortgage term. This includes having to repay your loan, pay any costs and charges that become due, and typically pay interest on all of them. If you have a repayment mortgage, you will make monthly payments set at a level to cover everything you owe apart from arrears (and by arrears we mean the total of monthly payments and any parts of monthly payments that have become due but remain unpaid) and unpaid interest by the end of your mortgage term. If instead you have an interest-only mortgage, your monthly payments will cover just the interest you owe, and you will have to pay everything else in one go at the end of your mortgage term. We also tell you what we can do if we have concerns that your arrangements to repay everything you owe at the end of your mortgage term are not sufficient. You may need to pay certain charges separately to everything else. This booklet needs to be read alongside your offer letter. The offer letter will give you information about, among other things, your mortgage term; whether you have a repayment mortgage or interest-only mortgage ; which interest rate (or rates) you have; the amounts of your monthly payments; and certain charges you have agreed to up front (other charges and costs may become payable later on). If there is a conflict between different parts of our agreement we tell you in Chapter 18 which part of our agreement you should look at to be sure of the position. Read more about this Chapters 1, 2 and 3 Chapters 1, 2, 3 and 18 Arrears If you have or have had arrears on your account, we will not take account of any outstanding arrears when we change your monthly payment. On the other hand we will take into account interest that has built up on any arrears since we last changed your monthly payment. You will need to make separate arrangements to pay off any arrears. We may contact you to discuss your arrangements to repay any arrears, unpaid interest, charges and costs that you owe. Chapter 1 How our agreement can change Our agreement can last for a long time, and so we are likely to change the level of our interest rates, charges and costs in the future. We may also change other aspects of our agreement, including things in your offer letter. We explain in Chapter 11 how we will let you know when we make changes to our agreement. Chapters 1, 2, 3, 11 and 12 Interest you pay We will work out your interest on a daily basis. This broadly means we look at everything you owe each day and calculate a day s worth of interest on it. We will charge you each month s worth of interest by adding it to your loan at the beginning of the next month. We have different types of fixed and variable interest rates that can apply to your loan. Chapters 2 and 13 3
Where there are different parts to your mortgage loan Early repayment and underpayments Main points covered Different parts of your loan can be on a different basis, for example one part of your loan can have a different interest rate to another part. This means that some Chapters in this booklet can apply differently to different parts of your loan. You can pay off everything you owe before the end of your mortgage term or pay off part of it early. If you do so, you may have to pay an early repayment charge. In some circumstances (normally where you break our agreement) we may require you to pay off everything you owe before the end of your mortgage term. If so, you may have to pay an early repayment charge, and there are a number of steps we can take, such as taking possession of your property and selling or renting it out to help pay what you owe. If you pay off part of what you owe early, we will use your payment in a particular way unless (after paying off any early repayment charge and overdue amounts) you have asked otherwise. If you do not make a monthly payment in full, we will treat your underpayment in a particular way. Read more about this Chapters 4 and 6 Chapters 5, 6, 14 and 15 Insurance You must make sure your property is insured and (where you arrange the insurance yourself) pay the property insurance premiums on time. Although we do not have to, we may insure our interest and/or your interest in your property (at your expense) if you do not insure it. Chapter 7 Our rights and how we may use them Things you have to do Where we can make changes to our agreement, there are specific protections as to how and why we can make those changes. Otherwise, as a general rule, we will act reasonably when using rights in our agreement. We may transfer some or all of our rights in the mortgage and our agreement to someone else. In some circumstances we may have a right to take possession of your property, enter your property or ask others to enter your property to take certain action. We will be your attorney, which allows us to do various things in your name for our benefit. If we appoint a receiver, he will act on your behalf and will also be your attorney. We lend you money on the basis that you pay us what you should and repay everything you owe when you should, and do the other things you agree to under our agreement. That includes using your property as your main residence (unless we agree otherwise) and keeping it in good repair and getting our permission before you do certain things, for example letting your property, altering or adding to it or changing its use. If you do not do what you should when you should, we may do it instead and you will have to pay for that. Remember - this means you will be breaking our agreement. Chapters 8, 15, 16, 17 and 18 Chapters 9 and 13 in particular Our security You give us the mortgage on your property as security for the money we lend you and everything else you owe us under our agreement. It also covers any money you owe us under certain other mortgage agreements you have (or had) with us or might have with us in the future; and under a mortgage loan we have made to you jointly with someone else. We can keep the mortgage as security until you have paid us in full everything you owe under our agreement and under the other agreements and mortgage loans it covers. Chapter 10 Properties in Scotland For properties in Scotland, the law states that there are certain standard conditions which apply to mortgage loans. If there is a conflict between different parts of our agreement we tell you in Chapter 18 which part of our agreement you should look at to be sure of the position. Chapter 18 and the Standard Conditions (at the end of this booklet). 4
OUR MORTGAGE CONDITIONS GETTING STARTED CHAPTER 1: WHAT, WHEN AND HOW WILL YOU PAY? PAGE 6 CHAPTER 2: THE INTEREST YOU PAY PAGE 10 CHAPTER 3: OUR CHARGES AND OUR COSTS PAGE 13 CHAPTER 4: WHERE DIFFERENT PARTS OF YOUR MORTGAGE LOAN ARE ON A DIFFERENT BASIS PAGE 16 CHAPTER 5: EARLY REPAYMENT PAGE 17 CHAPTER 7: INSURING YOUR PROPERTY PAGE 19 CHAPTER 8: OUR RIGHTS AND HOW WE MAY USE THEM PAGE 21 CHAPTER 9: WHAT YOU HAVE TO DO AND WHAT YOU HAVE TO ASK OUR PERMISSION TO DO PAGE 22 CHAPTER 10: OUR SECURITY AND WHAT IT COVERS PAGE 25 CHAPTER 11: CONTACTING YOU PAGE 26 CHAPTER 6: HOW WE APPLY OVERPAYMENTS AND UNDERPAYMENTS PAGE 18 5
CHAPTER 1 WHAT, WHEN AND HOW WILL YOU PAY? THIS CHAPTER GIVES YOU AN OVERVIEW OF WHAT YOU WILL HAVE TO PAY (OR MAY HAVE TO PAY) UNDER OUR AGREEMENT. IT THEN COVERS DETAILS ABOUT YOUR MONTHLY PAYMENTS, SUCH AS WHAT THEY WILL BE, WHEN AND HOW YOU SHOULD MAKE THEM, AND HOW THIS MAY DIFFER FOR REPAYMENT MORTGAGES AND INTEREST-ONLY MORTGAGES. IT ALSO TELLS YOU WHEN WE CAN CHANGE YOUR MONTHLY PAYMENT. IF YOU HAVE AN INTEREST-ONLY MORTGAGE, THIS CHAPTER TELLS YOU WHAT WE CAN DO IF WE HAVE CONCERNS ABOUT YOUR ABILITY TO PAY OFF EVERYTHING YOU OWE AT THE END OF YOUR MORTGAGE TERM. THE SECTION AT THE END OF THIS CHAPTER TELLS YOU ABOUT SOME DIFFERENCES (SUCH AS HOW WE WORK OUT YOUR MONTHLY PAYMENT) IF YOU HAVE OR HAVE HAD ARREARS. WHAT WILL YOU PAY? You will have to pay us back your loan, and pay us interest on it until you do. You might also have to pay us: some charges and costs; and interest on any interest, charges and costs that you owe and have not yet paid. In this booklet, we refer to the total of your loan, costs, charges and interest as everything you owe. Where we are looking at everything you owe at a particular time, we refer to this as what you owe. Please note that in both cases, this includes any arrears on your account. You must pay us everything you owe by the end of your mortgage term. What is your mortgage term? Here, term means period of time, and your mortgage term is how long you have to pay everything you owe. Your mortgage term will be the period of time you agree to, usually in your offer letter, unless your mortgage loan ends early or we extend it. We will agree with you, usually in your offer letter, whether you have a repayment mortgage or an interest-only mortgage (or both), what your monthly payments are, and the interest rate (or rates) and any charges that you have to pay. There might be further costs that you have to pay, which will be explained in Chapter 3 and at points throughout this booklet. What is a repayment mortgage? With a repayment mortgage, you pay off part of your loan with each of your monthly payments. What is an interest-only mortgage? With an interest-only mortgage, your monthly payment is to pay interest on what you owe but you do not pay anything to pay off what you owe in your monthly payment. This means you have to make other arrangements to pay off everything you owe by the end of your mortgage term. Our agreement can last for a long time, and so the levels of our interest rates, charges, costs, and your monthly payments, are likely to change in the future. Chapters 2 and 3 (and this Chapter) give details of how and when they can change. YOUR MONTHLY PAYMENT AMOUNTS In this section, we explain about your monthly payments. There are differences if you have or have had arrears. Please see Differences if you have or have had arrears at the end of this Chapter. Repayment mortgages For repayment mortgages you will have to make monthly payments. We will work out the level of your monthly payment amounts so that everything you owe is repaid with interest by the end of your mortgage term. 6
Interest-only mortgages For interest-only mortgages you will have to make monthly payments at a level that pays only the interest. You will then need to make a lump sum payment at the end of your mortgage term to pay off everything else you owe, including repaying your loan. Repayment mortgages and interest-only mortgages For both repayment and interest-only mortgages, as far as we can reasonably do so, we calculate your monthly payments so that they will all be for the same amount. This also applies if, as we explain below, we later change the monthly payment amount. When we work out the interest collected by a monthly payment, we will treat each full month as an equal twelfth part of the year. This means we will usually collect slightly less interest than you owe in months that are 31 days long, and slightly more than you owe in the other months. As an exception, we will set your first monthly payment at a higher amount if we give you the loan on any date other than the 1st of a month. This is because your first monthly payment will be the 1st of the second full month after we give you your loan, so we will add the interest from the previous month(s) of your loan on top of your first monthly payment. Someone takes a new loan on 10th June and we work out their usual monthly payment will be 1,000. We then work out that the interest on their loan from 10th to 30th June is 250, which will be added to their usual monthly payment. Their first monthly payment is in August, and will be 1,000 + 250 = 1,250. We will tell you your monthly payment amounts after giving you a loan. As a further exception, we may set your final monthly payment at a higher or lower amount to take into account any overpayment or underpayment made on the account. WHEN AND HOW TO MAKE YOUR MONTHLY PAYMENTS You will have to make your monthly payments until you reach the end of your mortgage term. You must make them on the 1st day of each month and you must do so by direct debit from one personal current account held in your name (or one or more of your names if there is more than one of you borrowing from us). If when you reach the end of your mortgage term you have not paid off everything you owe, you must pay us everything you still owe at the end of your mortgage term. This will include any unpaid part of your loan and all unpaid interest, charges and costs. Weekends or public holidays We will only ask you to make your monthly payments on working days (as opposed to weekends and public holidays). So, if one of your monthly payment days falls on a weekend or public holiday, you will instead make the monthly payment on the next working day. Say your monthly payment day is the 1st, and in February that falls on a Saturday, you will have to make your payment on Monday 3rd February. Then in September and each month after that, their monthly payment will be 1,000. If we give you the loan on the 1st of a month, your first monthly payment will be the 1st of the next month. Someone takes a new loan on 1st October. We work out that their usual monthly payment amount will be 2,500. Their first monthly payment is in November, and will be for 2,500 and each month after that will also be for 2,500. 7
TEMPORARY STOP OR REDUCTION TO MONTHLY PAYMENTS We may choose to allow you, temporarily, to stop making your monthly payments or to pay lower monthly payment amounts. We may do this if, for example, you have trouble meeting your payments. If so, we can later do one or more of the following things. Start your monthly payments again. Extend your mortgage term, if we reasonably think you need more time to make your payments. This means that (unless our agreement ends early) you will need to make monthly payments for a longer period into the future, which means you will end up paying more for your loan. Increase your monthly payment amounts. Repayment mortgages If you have a repayment mortgage, and we increase your monthly payments, we will work out the new amounts to be enough to pay off everything you owe by the end of your mortgage term. Interest-only mortgages If you have an interest-only mortgage, and we increase your monthly payments, we will work out the new amounts to cover the interest on what you owe. The overall amount you owe will have increased because of you having stopped making (or having reduced) your monthly payments. You must make sure that your arrangements to repay everything you owe at the end of your mortgage term cover the increase in the overall amount you owe. Repayment and interest-only mortgages We will tell you before we start your monthly payments again, increase them, or extend your mortgage term. This gives you an opportunity to contact us if you would like to discuss what we are doing. Please note that we can also take other steps and other things can happen, as described in Chapters 14 to 16. YOUR ARRANGEMENTS TO PAY OFF EVERYTHING YOU OWE, IF YOU HAVE AN INTEREST-ONLY MORTGAGE We can ask you to show us what arrangements you have made to pay everything you owe by the end of your mortgage term. If we are reasonably concerned that those arrangements may not be sufficient, we will make a reasonable effort to contact you to discuss how you can put that right. If we cannot get hold of you, or are not reasonably satisfied with how our discussions go, we may do one or both of the following. Switch some or all of what you owe from an interestonly mortgage to a repayment mortgage. This means you will have to pay monthly payments set at higher levels to pay off everything you owe (including your loan but excluding any outstanding arrears) by the end of your mortgage term. Extend your mortgage term, if we reasonably think you need more time to make your payments. This means that (unless our agreement ends early) you will need to make monthly payments for a longer period into the future, which means you will end up paying more for your loan. We will give you notice before we do this. WHEN WE CAN CHANGE YOUR MONTHLY PAYMENTS Sometimes, we may need to adjust your monthly payment amounts so that they can continue to be at the level described under the heading Your monthly payment amounts near the start of this Chapter. We may do this if for example: your interest rate changes; we change how we work out interest; you have to pay a new charge or cost; you make an overpayment; you are late making a payment or only pay part of it; we lend you more money; there is a change to your mortgage term; we have allowed a temporary stop or reduction to your monthly payments; you switch to or from an interest-only mortgage; there has not been a change to your monthly payment amount for at least the last 6 months; to help comply with any laws and regulations (see Chapter 18 for an explanation of what we mean by laws and regulations ); or to help comply with any change in how those laws and regulations, are applied or interpreted; We will give you notice when we change your monthly payments. 8
DIFFERENCES WHERE YOU HAVE OR HAVE HAD ARREARS What are arrears? By arrears, we mean the total of monthly payments and any parts of monthly payments that have become due under your mortgage agreement but in breach of your agreement remain unpaid. There are some differences in what we do to your monthly payments if you have or have had arrears. The main change is that your monthly payment does not take any arrears into account. When we change your monthly payment, then if you have or have had arrears we do not take account of any outstanding arrears. On the other hand, we do take account of any interest that has built up as the result of any arrears since we last changed your monthly payment. We do this for both repayment mortgages and for interest-only mortgages. This means that you will need to make separate arrangements with us to pay the arrears together with any unpaid interest, charges or costs. There is no difference in when or how you make your monthly payments. Please note that you will have to pay extra interest, and even interest on interest, for arrears. Please see What we charge interest on in Chapter 2 below, for more information on this. YOUR ARRANGEMENTS TO PAY OFF EVERYTHING YOU OWE IF THERE ARE OR HAVE BEEN ARREARS ON YOUR ACCOUNT You will need to make sure that you pay everything you owe, including any arrears together with any unpaid interest, charges and costs. We may contact you to discuss your arrangements to repay any arrears, unpaid interest, charges and costs that you owe. We will then need to agree with you how these will be paid. If they have not been paid by the end of your mortgage term they will have to be paid then. Say you have difficulties in making payments after 4 years of your mortgage and you make reduced payments for 3 months. That will mean that you then have to make up for those reduced payments and any unpaid interest, charges and costs charged because of the reduced payments. You will have to make separate arrangements with us to pay the arrears and any interest, charges and costs we charge resulting from those arrears because we will not increase your normal monthly payment to cover these amounts after we recalculate your monthly payment. If you have an interest-only mortgage, you might need to add to your arrangements to pay off everything you owe by the end of your mortgage term, to make sure it covers any extra amounts because you have had arrears. This could include interest that has been charged, but not paid by you under arrangements to pay off arrears. WHEN WE CHANGE YOUR MONTHLY PAYMENTS IF THERE ARE ARREARS ON YOUR ACCOUNT Repayment mortgages For repayment mortgages when we change your monthly payment, we will work out the level of your monthly payment amounts so that everything you owe at that time, other than any outstanding arrears, is repaid with interest by the end of your mortgage term. Interest-only mortgages For interest-only mortgages when we change your monthly payment, we will work out the level of your monthly payment amounts so that you pay the monthly interest on what you owe, other than any outstanding arrears. This means that for both repayment mortgages and interest-only mortgages, if you have or have had any arrears, you must make separate arrangements to pay them off together with any unpaid interest, costs and charges. 9
CHAPTER 2 THE INTEREST YOU PAY YOU WILL HAVE TO PAY US INTEREST ON WHAT YOU OWE. THERE ARE DIFFERENT TYPES OF INTEREST RATES AND IN THIS CHAPTER WE EXPLAIN HOW EACH OF THEM WORKS, BUT YOUR OFFER LETTER WILL TELL YOU WHAT TYPE OR TYPES APPLY TO YOUR LOAN. THIS CHAPTER ALSO EXPLAINS WHEN WE WILL CHARGE INTEREST, HOW WE WORK OUT HOW MUCH INTEREST YOU HAVE TO PAY AND HOW WE MAY CHANGE AN INTEREST RATE. WHAT WE CHARGE INTEREST ON We charge interest on everything you owe (until you have paid it off) unless we tell you we are not charging interest on something. We charge you interest for every day you owe us anything under our agreement. We start charging interest: on any money we lend you from the day we lend it to you; on interest from the day we add it to your loan; and on any charges and costs in the way we explain in Chapter 3 (in the section called When and how to pay our charges and costs ). Please note that interest will be charged on, and added to, everything you owe including any unpaid interest. This can therefore include interest on interest. If you make a payment, it will reduce what you owe (and so what we charge interest on) from the day we actually receive the money. If you pay by cheque this will be three working days after we receive your cheque. If we receive a cheque on Tuesday 28th July, the amount you owe will reduce on Friday 31st July. HOW WE WORK OUT INTEREST Each day, we look at what you owe at the start of the day and then at anything we add to what you owe (such as a charge) or that you pay off (say a monthly payment) during the day. We then multiply the total by your yearly interest rate and divide by 365. This is the interest that will be charged for that day. The interest for the whole month is calculated by adding together each day s interest. It is then added to your mortgage on the first day of the next month. We perform our calculation to five decimal places at each step and then round up the result to the nearest penny. Someone owes 100,000 on 1st June, and on 16th June they make a payment of 20,000. Their yearly interest rate is 6%. On that basis, we work out their interest for June as follows. 100,000 x 6% 365 = 16.43836 (being the amount of interest payable each day on 100,000) 16.43836 x 15 = 246.57540 (being the interest for the 15 days from 1st to 15th June) 80,000 x 6% 365 = 13.15068 (being the amount of interest payable each day on 80,000) 13.15068 x 15 = 197.26020 (being the interest for the 15 days from 16th to 30th June) 246.57540 + 197.26020 = 443.83560 Total Interest charge for June = 443.84 This interest charge is added to their mortgage account on 1st July. 10
Sometimes we may change an interest rate at a point during a month. (For details of when we might do this see later in this Chapter under the headings When can we change a lender variable rate?, Tracker rates and Added rate.) If we do change the rate after the beginning of the month we will work out the interest in the same way as set out above but we will use the original rate up until the date of the rate change, and use the new rate for the rest of the month. WHEN DO WE ADD INTEREST? We will add the interest for each month to what you owe on the first day of the next month. We start charging you interest on that interest (often called compound interest ) from when we add the interest to your loan. You will only pay interest on interest for any amount that is not covered by your monthly payment or for all the interest added if you do not make your monthly payment on time. WHAT TYPE OF INTEREST RATE DO YOU HAVE? We will agree with you: whether your interest rate is fixed or variable; when an interest rate will end, if it is only for part of your mortgage term; and whether you pay different rates on different parts of your loan. We will usually agree terms about your interest rate in your offer letter, and that is what we assume when we refer to your offer letter in the rest of this Chapter. Someone s offer letter may say that they will pay: a fixed rate which ends on a certain date or after a certain period of time; a variable rate which ends on a certain date or after a certain period of time; or a mixture of these. WHAT HAPPENS WHEN YOUR FIXED OR VARIABLE RATE ENDS? Your offer letter will say how long your fixed or variable rate will last for and what will replace it (usually a lender variable rate) when it ends. Fixed rates What is a fixed rate? A fixed rate is an interest rate that does not go up or down the interest rate remains the same for the period of time that it is fixed. Variable rates What is a variable rate? A variable rate is an interest rate that can change. A variable rate can go up and down. There are different types of variable rate, for example lender variable and tracker rates. You can read more about different types of variable rate and how they can change below. Lender variable rates What is a lender variable rate? A lender variable rate is a variable interest rate which we set and can decide to change. We can charge different lender variable rates for different customers or different types of loan. We may even charge different lender variable rates on different parts of the same loan. Your offer letter will say if one or more lender variable rates are to apply to your loan. WHEN CAN WE CHANGE A LENDER VARIABLE RATE? We can change a lender variable rate at any time, after giving you notice that we are going to do so. We can reduce the rate for any reason, but we will only increase it in the following situations. Change to our cost of lending: We have costs in raising the money lent to our residential mortgage customers. If those costs change, or we know they are about to change, we can change a lender variable rate in proportion to the change in costs. Change to laws and regulations: We of course follow laws and regulations (see Chapter 18 for an explanation of what we mean by laws and regulations ). These might change, or we might know that they are about to change. 11
If the change in laws and regulations means we should change a lender variable rate, we will do so. If there is a change to our cost of following laws and regulations, as a result of a change to them, we can also change a lender variable rate in proportion to the change in cost. Sometimes those reasons may allow us to change one lender variable rate at a different time or by a different amount from another lender variable rate. What is a residential mortgage? This is where we take a mortgage over a property that is used as someone s home, or intended to be used as a home. It could be either the customer s home or someone else s, for example someone the customer let the property to. Tracker rates What is a tracker rate? A tracker rate is where your interest rate follows another rate which is not set by us. It will track that other rate by a margin. If the rate being tracked changes, we will also change your rate to keep to the margin and we will give you notice when we do so. The new rate will apply from the first day of the next month. Say your interest rate tracks Bank of England base rate by a margin of +2% then, when the base rate is 2%, your interest rate would be 4%. If a base rate increase to 3% is published on, say, 10th June, then we will raise your interest rate to 5% on 1st July. Say your interest rate tracks Bank of England base rate by a margin of +1.5% then, when the base rate is 1%, your interest rate would be 2.5%. If a base rate decrease to 0.5% is published on, say, 8th November, then we will reduce your interest rate to 2% on 1st December. Your offer letter will say if you are to have a tracker rate, what your margin is, what rate it tracks and how long it lasts. The margin could be positive (for example, base rate +2%), negative (for example, base rate -1%) or even zero (if, for example, your interest rate is set at the same level as the base rate). We will not change the margin. However, if the margin means that your interest rate would fall below zero, your interest rate will be 0% instead. Say your interest rate tracks Bank of England base rate by a margin of -1% then, when the base rate is 1%, your interest rate would be 0%. If the base rate then decreased to 0.5%, we will not reduce your interest rate. Your interest rate will remain at 0%. Added rate What is an added rate? This is where we charge an additional interest rate on top of a fixed or variable rate (or rates) that you must pay on your loan. We may charge you one or more added rates if: you agree to it in your offer letter; or an added rate becomes payable for the reasons in Chapter 13 under the heading Extra interest or regular additional payments (which can apply if you let your property or change its use without our permission). We can reduce or stop charging an added rate at any time. We can also increase an added rate for the same reasons as we can increase a lender variable rate (see above). We will not, however, increase an added rate as a result of a change to our cost of lending or our cost of following laws and regulations, if we have already increased another rate that applies to the same part of what you owe for the same reason. Sometimes those reasons may allow us to increase the added rate at a different time or by a different amount from a change to a lender variable rate. We will give you notice before we change an added rate. What is Bank of England base rate? This is the official Bank of England Bank Rate, which people commonly call base rate. 12
CHAPTER 3 OUR CHARGES AND OUR COSTS IN ADDITION TO PAYING US INTEREST YOU WILL SOMETIMES HAVE TO PAY CHARGES AND COSTS IN RELATION TO THE MORTGAGE, YOUR PROPERTY OR OUR AGREEMENT. THIS CHAPTER EXPLAINS WHAT THESE CHARGES AND COSTS MAY BE, HOW WE WORK THEM OUT, WHEN AND HOW WE WILL PASS THEM ON TO YOU AND WHEN WE CHARGE INTEREST ON THEM. IT ALSO COVERS WHEN WE MAY CHANGE OUR COSTS. As well as paying us interest on your loan, you may have to pay us charges and costs. WHAT ARE OUR CHARGES? Our charges relating to our agreement are any: charges at the start of our agreement as described in your offer letter, for example a product fee ; charges included in our tariff of charges, for example a consent to let fee; early repayment charges (see Chapter 5); other charges you have to pay when you repay part, or all, of everything you owe, including at the end of your mortgage term; regular additional payments described in Chapter 13 (under the heading Extra interest or regular additional payments ); charges for us to agree to additional borrowing or new services; charges for us to agree to making a change to our agreement (for example, changing the type of rate you pay, or a borrower, or your mortgage term). Chapter 13 tells you how we may charge any regular additional payments. Otherwise, we will tell you of any charges in advance, so that you will have agreed to them before they become payable. WHAT ARE OUR COSTS? Our costs are what you pay us for our expenses to do with the mortgage, your property or our agreement, apart from: our normal expenses for servicing our residential mortgages in general where our customers are keeping to their agreements with us, as we have already taken those expenses into account when setting our interest rates and the charges we mention above; or other expenses included in the charges we mention above. Our costs might come about because of something you ask for, or because you do not keep to your obligations under our agreement. You will only have to pay for a cost of ours so far as the cost is reasonable. WHAT COSTS WILL YOU HAVE TO PAY EXTRA FOR? It would not be possible to list every type of cost, but some common examples are: the costs of taking legal or other action if you break our agreement or if there is a dispute to do with the mortgage, your property or our agreement; the costs of us having to make payments to other people because you have not met your obligations to do with your property, for example, if we pay a service charge where you have failed to do so; and the costs of taking steps such as inspecting, valuing or insuring your property, where our agreement allows us to take those steps. (Chapters 12 to 18, headed What else can we do?, set out in more detail the types of action we can take and when we can take it.) 13
OUR STANDARD COSTS In many cases our costs will be standard costs (but not all of them, as we explain later in this Chapter). We will give you information about our standard costs and regular updates of any additions or changes to them. If a standard cost is not covered by our latest information (or has since changed) we will tell you before you have to pay the cost. HOW WE SET OUR STANDARD COSTS We work out each of our standard costs to be a reasonable amount, as follows. Each will be for all our costs for the activity, including both our own internal costs and costs we pay to other people. We will make a reasonable estimate of the expected average costs, and set the fee at the level of that average. As well as costs specific to the standard cost, our estimate can include, for example, a reasonable share of our costs in having and using resources (such as offices, staff and computer systems) that we also use for other purposes. If our costs (whether internal or paid to other people) change, we can change our standard costs as described below. HOW WE CAN CHANGE OUR STANDARD COSTS We can reduce or cancel a standard cost at any time for any reason. We can also increase a standard cost or bring in a new one at any time, but only in the following situations. Change to our costs: If our costs change, or we know they are about to change, we can change our standard cost in proportion to the change. Change to laws and regulations: We of course follow laws and regulations (see Chapter 18 for an explanation of what we mean by laws and regulations ). These might change, or we might know that they are about to change. If the change in laws and regulations means we should change our standard costs, or the levels of our standard costs, we will do so. If there is a change to our cost of following laws and regulations, as a result of a change to them, we can also change our standard cost (including bringing in new standard costs) in proportion to the change in our cost. If we change the level of a standard cost or bring in a new standard cost, we will give you notice before it becomes payable. WHERE WE DO NOT HAVE A STANDARD COST Where we do not have a standard cost, we will simply charge you a reasonable amount to cover our internal costs and any costs we pay to other people. Suppose you have a lease for your property and we end up having to pay the ground rent and service charges because you have not. If we do have a standard cost to cover our internal costs of dealing with those payments, you will have to pay this. However, our standard cost will not cover the amounts of the ground rent and service charge themselves. This is because we cannot estimate in advance what we might end up having to pay. So, you will have to pay us what we pay your landlord on top of any standard cost we may have. New or increased standard costs: If we have been giving you something for free or we bring in something new, we can start charging a standard cost for it. Similarly, we can increase our standard costs if we have not been fully passing on our costs. 14
TAXES ON OUR COSTS If any tax is payable on our standard costs or other costs that we pass on to you, you must also pay the tax unless we reasonably think that we can recover it in some other way. We will add the amount of tax to the cost that you have to pay. You may have to pay VAT or (if, say, we arrange buildings insurance) insurance premium tax. WHEN AND HOW TO PAY OUR CHARGES AND COSTS When must you pay a charge? If you have to make regular additional payments under Chapter 13, we will tell you when to pay them. Otherwise, a charge will be payable on the date you have agreed to pay it, whether in your offer letter or otherwise. If we agree to add a charge to your loan, we will add it on the date it becomes payable. If we have not agreed to add it to your loan, you must pay it separately when it becomes payable if you do not we can then add it to your loan. When must you pay a cost? We can add a cost to your loan on the date it becomes payable. For a cost where we have to pay another person, it will be the date on which we pay that person. For any other cost, it will be the date by which we have done the work covered by the cost. We will write to you before we add a cost to your loan. What happens if we add a charge or cost to your loan? If we add a charge or cost to your loan then, unless we tell you otherwise, we will charge interest on it. You will also have to pay a charge or cost that we add to your loan on the same basis as you repay your loan, again unless we have agreed otherwise. This means that, when we next change your monthly payments, we will at the same time change them so that: for a repayment mortgage, they pay off the charge or cost (and everything else you owe other than any outstanding arrears) by the end of your mortgage term; and for an interest-only mortgage, they pay the extra interest on the charge or cost. You must make sure that your arrangements to repay everything you owe at the end of your mortgage term also cover any charges and costs that are added to your loan. WHAT IF YOUR LOAN IS IN DIFFERENT PARTS? As we discuss in Chapter 4, different parts of your loan can have different interest rates, mortgage terms or repayment methods. We will tell you which part of your loan we add a charge or cost to. If you repay that part before another part, we will add any remaining charges and costs to a remaining part of your loan. Unless we notify you otherwise you will have to pay each charge and cost (and interest on it) on the same basis as the part of your loan we add it to. If you have an interest-only mortgage, we may require you to pay charges and costs that have been added to your loan on a repayment basis. We will charge interest on a charge or cost from when we add it to your loan. You will have to pay interest on the charge or cost at the same interest rate as you pay on your loan, unless we have agreed otherwise (for example, in your offer letter). 15
CHAPTER 4 WHERE DIFFERENT PARTS OF YOUR MORTGAGE LOAN ARE ON A DIFFERENT BASIS YOUR LOAN MAY BE IN DIFFERENT PARTS AND DIFFERENT CONDITIONS MAY APPLY TO EACH PART, SO THAT THE REPAYMENT METHOD, THE TYPE OF INTEREST RATE OR THE MORTGAGE TERM OF ONE PART OF YOUR LOAN MAY BE DIFFERENT TO ANOTHER PART. THIS CHAPTER EXPLAINS MORE ABOUT WHAT IT WILL MEAN FOR YOU IF YOUR LOAN DOES HAVE DIFFERENT PARTS. WHAT DIFFERENT TYPES OF LOAN ARE THERE? A loan can have different types of repayment method. It can be an interest-only mortgage or a repayment mortgage. Different types of interest rate can apply, for example a loan can have a fixed or tracker rate, or a lender variable rate. Different mortgage terms may be agreed, for example one loan may need to be repaid within 15 years and another within 25 years. Sometimes a single loan can be a mixture of these. A single loan for 250,000 could be made up of: one part, for 100,000, which has a fixed interest rate of 5%; and the other part, for 150,000, which has a tracker rate of Bank of England base rate +2%. HOW DOES THIS AFFECT YOU? We will give an indication, usually in the offer letter, if your loan is in different parts. If your loan is in different parts, we may require you to: make a single monthly payment for all parts; make separate monthly payments for different parts; or make separate monthly payments to cover any costs or charges that you have to pay. Also, please remember when reading this booklet that things can apply differently to different parts of your loan. If one part of someone s loan is on a tracker rate and another part is on a lender variable rate, different sections in Chapter 2 apply. If one part of someone s loan is on one of our lender variable rates, and another part is on another of our lender variable rates, we may change those rates at different times or, say, increase one by 0.5% and the other by only 0.25%. We may set and change your monthly payments separately for each part. 16
CHAPTER 5 EARLY REPAYMENT YOU MAY FIND YOU ARE IN A POSITION TO PAY OFF SOME, OR ALL, OF WHAT YOU OWE EARLIER THAN YOU ORIGINALLY AGREED TO (OR YOU MAY HAVE TO DO SO). IF YOU DO, YOU MAY HAVE TO PAY US AN EXTRA CHARGE. IN THIS CHAPTER YOU CAN FIND OUT HOW EARLY REPAYMENT WILL WORK AND WHEN AND HOW YOU MAY HAVE TO PAY THAT CHARGE. PAYING OFF WHAT YOU OWE EARLY At any time before the end of your mortgage term you can choose to make an early repayment by either paying: everything you owe early (for example, if you remortgage or sell your property); or only part of what you owe early, by making a payment on top of your monthly payments. CHARGE FOR EARLY REPAYMENT You might or might not have to pay us an early repayment charge, depending on what you have agreed to (usually in your offer letter). If it is payable, we will add it to what you owe. Someone owes 100,000, and wishes to pay it off in full at a time when a 3% early repayment charge applies. Here, the early repayment charge would be 3% x 100,000 = 3,000. The customer would therefore need to pay 100,000 + 3,000 = 103,000 to pay off their mortgage loan in full. Someone owes 50,000, and wishes to pay it off in full at a time when no early repayment charge applies. The customer would therefore just need to pay off the outstanding 50,000 to pay off their mortgage loan in full. Remember, if you make an early repayment at some time during the month, you will also have to pay any interest that has been charged up to the day you pay off your mortgage loan. Where you make an early repayment of only part of what you owe, and an early repayment charge applies, we will ask you to pay an early repayment charge just on that part (see the example in the next Chapter). Where the charge is payable, it will not only be payable where you choose to make the early repayment, but also where you have to make the early repayment or we make it (Chapter 14 explains when that might be). We may also ask you to pay an early repayment charge if you ask us to change the type of interest rate (or rates) you are paying, and we agree to the change. 17
CHAPTER 6 HOW WE APPLY OVERPAYMENTS AND UNDERPAYMENTS THERE MAY BE TIMES WHEN YOU CHOOSE TO PAY MORE, OR YOU PAY LESS, THAN YOUR MONTHLY PAYMENTS. THIS CHAPTER EXPLAINS HOW WE WILL USE SUCH PAYMENTS WHEN YOUR LOAN IS IN DIFFERENT PARTS, HOW THEY WILL AFFECT YOUR LOAN AND HOW YOU HAVE SOME CHOICE AS TO HOW AN OVERPAYMENT WILL BE USED. An overpayment is when you choose to pay more than your monthly payment. An underpayment is where you pay less than you owe for your monthly payment. In this Chapter 6, we explain how we will use an overpayment or an underpayment if your loan has more than one part (see Chapter 4). We will use any other money that we receive, that does not form part of your monthly payment, in the same way. If you are choosing to make an overpayment, and want us to use it differently, you can ask ahead of making the Someone has a loan with us which has two parts. Let s say their total monthly payment is 400, of which: payment. We will then use the overpayment as you wish, but only after we first use it to pay any early repayment charge and any overdue amounts such as a missed monthly payment. HOW WE USE UNDERPAYMENTS AND (UNLESS YOU CAN AND DO TELL US OTHERWISE) OVERPAYMENTS We will use an underpayment or overpayment to pay towards each part of your loan in the same proportions as we apply your full monthly payments to those parts. We calculate what percentage of their total monthly payment is made to each part:- 100 is the monthly payment on part 1 300 is the monthly payment on part 2 Payment on part 1 ( 100) Total monthly payment ( 400) Payment on part 2 ( 300) Total monthly payment ( 400) X 100 = 25% X 100 = 75% Scenario A They make an overpayment of 100 (on top of their 400 monthly payment) Scenario B They make an overpayment of 100, and an early repayment charge of 3 is payable on part 2 Scenario C They pay 300 instead of 400 for their monthly payment (an underpayment) We apply 25 of the overpayment to part 1. (Overpayment of 100 X 25%= 25) We apply 75 of the overpayment to part 2. (Overpayment of 100 X 75%= 75) We apply 25 of the overpayment to part 1. (Overpayment of 100 X 25%= 25) We apply 75 of the overpayment to part 2. (Overpayment of 100 X 75% = 75) We apply the early repayment charge of 3 to part 2. This means that overall the amount owed on part 2 has been reduced by 72. We apply 75 of the underpayment to part 1. (Underpayment of 300 X 25%= 75) We apply 225 of the underpayment to part 2. (Underpayment of 300 X 75%= 225) 18
CHAPTER 7 INSURING YOUR PROPERTY YOU MUST HAVE BUILDINGS INSURANCE OVER YOUR PROPERTY AS LONG AS YOU HAVE THE MORTGAGE. THIS CHAPTER SETS OUT WHAT WE EXPECT THAT INSURANCE POLICY TO COVER AND THE THINGS THAT YOU MUST DO IN RELATION TO INSURANCE BEFORE AND AFTER YOU TAKE IT OUT. WE ALSO EXPLAIN HOW WE MAY STEP IN IF YOU DO NOT DO WHAT WE EXPECT. IF YOUR PROPERTY IS IN NORTHERN IRELAND, YOU CAN ALSO READ IN THIS CHAPTER ABOUT HOW ANY COMPENSATION PAYOUT YOU RECEIVE MAY HAVE TO BE USED. WHAT YOU MUST DO You must make sure that there is buildings insurance in place for your property at all times. What if you cannot insure? Sometimes you will not be able to insure your property yourself because someone else has the legal right to insure. An example of that would be if your property is leasehold and the lease requires your landlord to insure it. In that case, you must do all you reasonably can to make sure that your landlord insures it. You must show us details of the insurance policy and proof that it is still in force, if we ask you. If we reasonably think that the cover is not suitable, you must improve the cover as we ask. You must claim under the policy for any damage (except minor damage) you are covered for unless you put the damage right yourself. WHAT THE BUILDINGS INSURANCE POLICY MUST COVER When you insure your property, the policy must be suitable to cover your property so that if something happens to it, the money from a claim will pay to allow it to be put back to how it was before. When is a policy suitable? This normally requires the type and amount of insurance cover to be adequate and for the level of any excess to be affordable if you need to make a claim. (The excess is what you agree in the insurance policy to pay yourself if there is damage to your property, before you can look to the insurer to cover you.) For the type of cover, policies which cover comprehensive householders risks would normally be adequate. For the amount of cover, some policies have an unlimited amount of cover to allow your property to be rebuilt if badly damaged, without needing to keep checking that amount as prices for rebuilding change. Other policies have a limit. If the policy has a limit, you will need to make sure that it will be enough to allow your property to be completely rebuilt if badly damaged. WHAT WE CAN DO Although we do not have to, we may insure our interest and/or your interest in your property if: you are not insuring it (and we are not reasonably satisfied that anybody else has insured it); we reasonably believe the insurance is not suitable and you have not made it so if we have asked; or we have asked you to provide details of the insurance and/or proof that it is still in force and you have not done so. 19