Terminal Grant and Interest Only Mortgages

[Whenurhappy]

Possibly one for AL-R:

We took out a 25 year a base-rate tracker mortgage with a major high-street lender in 2007; To keep repayments down, we elected to have an element of the mortgage repayment only, with my gratuity being the 'payment vehicle' for this element of the mortgage. This was accepted by the mortgage lender at the time.

I've just heard from my bank today that this is no longer an acceptable repayment vehicle and in any case, the Bank could only utilise 25% of the Pension Fund.

I have explained until I am blue in the face that the Terminal Grant is not part of my pension, but payable on departure from the services (and it more than adequately covers the interest-only mortgage). The clerk at the other end responds with 'well, we don't accept the pension now as a payment vehicle', unless I can prove the value of the Pension Fund. I then patiently explain that Govt pensions are paid out of the current account, there is no actual fund value (although notional values are calculated for tax purposes).

I've made an appointment tomorrow to discuss the matter with the local branch Mortgage Advisor, otherwise my mortgage payments will jump by c £350 pcm!

How can a Bank de-accept a solid gold payment vehicle part-way through a mortgage? Have any other PPruners encountered this apparent change in the rules (I've been told that this also applies ot other high-street lenders)?

WP

Edited to add that if I walked out the door on 'PVR' rules today, the Terminal Grant would still cover the interest-only portion.

[N.HEALD]

Over recent years the majority of lenders wont accept interest only as a basis for a newly taken out mortgage however many thousands of individuals have mortgages taken out years ago on an interest only basis using typically an Endowment Policy, ISA or Pension Commencement Lump sum as the repayment "vehicle" in a lot of cases the eventual amounts generated by such investment backed vehicles may well fall short of the originally expected returns, and the borrower faced with a shortfall at the due mortgage redemption date. For this reason many lenders will not agree to a new "Interest Only" mortgage. In your case however the mortgage is establish, assuming you have made repayments on time and are not in arrears, or broken any of the terms and conditions of the mortgage it would seem very unfair of the lender to now wish to change the agreement. I would suggest that you talk to a good IFA or Mortgage Advisor if your meeting with the lenders in house "advisor" (I use the term reservedly" and get them to write to the lender detailing the intricacies of the AFPS and your Terminal grant. If that fails to work, take it up with the regulators as this seems to go against the premise of Treating Customers Fairly

Nige
Cert.PFS

NB This post should not be construed as advice and independent advice should be sought prior to making any decisions.

[Just This Once...]

I know of a few people have been caught out by using the full commuted value of the gratuity and the bank subsequently deciding that only the non-commuted value can be due to the 'commutation is not a right' clause.

Banks are trying to wriggle-out of a load of different mortgage deals. After trying a few dirty tricks my bank offered me a lump sum for me to leave them.

They didn't offer me enough though.:E

[Onceapilot]

Good luck sorting this ridiculous mess out!
Where is the PM's "service covenant" when you might need it?

OAP

[racedo]

Do not accept what has been said to you even if in writing, insist that you wish to speak to someone further up the food chain......

No idea of Lender but a clearly drafted letter to CEO explain piece by piece the detail behind it. Indicate that if they are still unsure of this then you are happy to contact MP and enable him to provide Govt confirmation of what it entails.

CEO's tend to respond quickly because when they fail to do so, especially on what could be an emotional subject it could end up in Daily Mail ( or others).

In all seriousness, likelihood of the person you are dealing with knowing the details of your grant, is pretty much non existent and their room for manouvre even less.

If writing to the CEO, be nice about whom you dealt with, indicating how helpful and polite they were, even if they unsure of detail. People more likely to help at senior level when you nice about their people.

Also in the remit of a CEO to do stuff which makes them look good.

[SirToppamHat]

Just going through the process of obtaining a mortgage myself and one of the things we needed to be absolutely clear about was the nature of the Terminal Grant - that this was not part of a pension fund (and therefore would not be a factor in the ongoing payments of pension from the IRP).

A couple of other things that we have learned that I am sure others will back-up include the fact that getting an interest-only mortgage for buy-to-let (even if the intent is to occupy in the longer term) is not likely to be possible when only one member of the partnership/marriage is in the Services. However, when both applicants are members of the Service this may well be possible. I don't really understand the logic of this.

Terms and conditions do vary from company to company of course.

STH

[Al R]

Good question, I assume it isn't a commercial/ buy to let mortgage that you have which can be treated differently, and many banks have different policies. I hope this all makes sense.

Before AFPS05 started, the legislation preamble stated;

"The Secretary of State may by order establish schemes which, in respect of a person’s service in the armed forces, provide—
(a) for benefits, in the form of pensions or otherwise, to be payable to or in respect of him on termination of service or on death or retirement, or
(b) for payments to be made towards the provision of such benefits."

The important bit is "or otherwise".

Staying focused on 05 for the minute, it includes an Early Departure Payment for those who leave before age 55 providing they have at least 18 years service and are at least 40 years of age. The EDP pays a tax-free lump sum and income of between 50% and 75% of preserved pension between the date of the individual’s departure from the Armed Forces and age 55. The income rises to 75% of preserved pension at age 55 and is index linked. At age 65 the EDP stops and the preserved pension and preserved pension lump sum are paid.7

The terminal gratuity is also subject to statute that says it cannot be treated in an identical manner to pension provision in matters relating to, for instance, pension sharing orders in divorce negotiations. I think confusion arises from the facts that it is paid at the same time as the pension so gives the impression of being part of it, rather than just being contemporaneous and the fact that ordinarily, pensions can give rise to lump sum payments. The MoD went to the extent of producing a notification to clarify that the introduction of the new AFPS 15 will not impact upon the Resettlement Grant because, as much as anything, the two are seperate.

Indeed, SP do not even have to be a member of AFPS at discharge to be eligible for it (I am 99.99% certain of that, I am happy to be corrected though). It exists, not to facilitate or supplement retirement income, but to assist resettling into civvy street after completing a substantial period of service, and to compensate for a shortish career. In other circumstances, it is not part of the pension, but a tax-free lump sum paid to SP who are not eligible for Early Departure Payment benefits or an Immediate Pension (or any other immediate pension benefits), but who do meet Resettlement Grant qualification criteria.

Finally, underscoring the difference, pension and terminal grant/benefit rights accrue separately, and at different rates. If they accrued together and at identical rates (producing a higher base level of pension with no terminal grant payable unless the member commutes part of the pension), survivors/widow's pensions would rise to more than the established 50% of the scheme member’s pension entitlement.

Could this happen? Yes, because there is room, under HMRC guidance, for a general increase in pensions benefits. Pensions benefits for the scheme member account for 62.5% of pay and half that figure for the widow. The Inland Revenue limit is up to 2/3 pay for the scheme member, and up to 4/9 pay for the widow. There would, therefore, be headroom within the usual rules governing pensions schemes to increase the level of benefits, but would this happen under AFPS? Nope, I don't think so either!

It is also worth telling the bank staff that in 2003, a report by Watson Wyatt stated that the Early Departure Scheme would be designed to provide a benefit which is overall lower in value than the Immediate Pension; the intention being to specifically provide a lump sum on exit from the services followed by a stream of income. This was intended to be seperate from the pension.

House of Commons - Defence - First Report (http://www.publications.parliament.uk/pa/cm200304/cmselect/cmdfence/96/9606.htm)

The government is passing a new military covenant that proposes forcing lenders to give military personnel and veterans easier access to mortgages. Finally, this is the FCA guidance on the matter. Lots of good stuff in here to hit them over the head with; make a complaint for the hell of it, based on the stress it has placed you under. Quote TCF, treating customers fairly.

http://www.fca.org.uk/static/documents/finalised-guidance/fg13-07.pdf#page18

I've just got back in and you don't have a lot of time but if you want to chat, I'll be in the car between 0830 and 1100 if you want to message me your number.

[NutLoose]

There was something similar on Watchdog this week just gone by, might be worth watching it, probably on BBC IPlayer it was based on a woman who had the funds available to repay it, but that wasn't been taken into account.

See

BBC One - Watchdog - Mortgage lenders rejecting people because they are too old (http://www.bbc.co.uk/programmes/b006mg74/features/mortgage-age-restrictions)

[longer ron]

Depends also who your mortgage is with I guess,I remortgaged to Nationwide 3 years ago and they seemed happy to use a company pension scheme as surety (?) for an interest only mortgage - although to be fair it is not a huge amount !
I was very happy to escape from santa ander - whom I had ended up with only because they had taken over the Happy National.

[ShotOne]

Don't take it personally, it's nothing to do with their view of service personnel, just an extension of slimeball policies towards everyone. They have moved the goalposts in a similar way with some mortgage holders by down-valuing the property then declaring the holder "in breach of covenant" allowing them to foreclose, or alternatively renegotiate the loan -of course at a significantly more expensive rate!

[Pontius Navigator]

Does Lloyds (Cox and Kings) still give financial seminars during resettlement. The chap I always remember had a name like Greenspan and gave excellent advice.

The point is, that department were experts on Service finances and might be able to put your Lloyds people square.

Hope the L&C can fix things too.

[Background Noise]

I'm in a similar boat. I just had a similar response from Santander who said they were not able to give an interest-only (re)mortgage relying on the AFPS05 lump sum at 65 as they treated it as an ordinary investment-based pension. I explained that it was not only already set at a known rate but that it was also payable on death but they wouldn't listen.

One option however, as collateral for the interest-only portion, which they did mention was downsizing. Presumably based on a plan to downsize at maturity and use the profit to pay off the outstanding balance. That may be an available avenue since you know you will have the capital to pay it off.

[NutLoose]

You should all get onto watchdog, read my link above, one comment was

A SPOKESPERSON FOR SANTANDER SAYS:
We have a policy to tie mortgage life into an individual's working life as that is where affordability is best served: however, we do lend beyond 65 and into retirement where income is capable of servicing the mortgage. Sadly in this case, we made an error in assessing affordability based on a lower retirement age than previously advised and we should have asked more questions so that we had the correct information upon which to base a decision: if we had done so, we would have provided the mortgage as requested.
We have apologised to Ms Marney. We got this wrong and should not have declined her application. We have repaid the early redemption charge plus the fees she incurred in taking out the new mortgage as a gesture of goodwill.

[Onceapilot]

Why is there not an MOD supported service pay and pension advice line for financial institutions to be given the correct gen? Is it because the goalposts will change? Is it because no one understands the rules in MOD? Or, is it because "people-first" and "supporting our personel" and "join-up now, we have a great Service Covenant you know:ok:", is all bolleaux:yuk:?

OAP

[Al R]

It might be that although the lender in the OT accepts that the terminal grant isn't linked to the pension, it can still take the view that it won't accept it as anything but. Then, I suppose, market forces take effect and the client can walk away. If the lender is going against FCA guidance though, then there could be grounds for a successful grievance. In light of it going all the way, from the file slapping on its doormat, the financial ombudsman is currently taking up to 2 years to hear the simplest of complaints.

The regulatory and compliancy aspects of financial services are SUCH a minefield that there is no way the MoD will want to be exposed to something as liability to financial advice, however indirect the link. The onus is on the lender to do its own research and the means are out there - it too, would need to demonstrate that its research is credible (relying on, or taking a steer from the MoD about a MoD 'product' probably wouldn't constitute suitably objective research in the event of a complaint).

Such is modern life..

[Onceapilot]

Cheers Al. I get where you are coming from on the financial advice caution. However, is not a straight-forward authoritative definition of an individuals financial contract with their employer something that a Serviceman should have access to? Advice that a financial service provider should be able to understand and, treat correctly?

OAP

[racedo]

Why is there not an MOD supported service pay and pension advice line for financial institutions to be given the correct gen? Is it because the goalposts will change? Is it because no one understands the rules in MOD? Or, is it because "people-first" and "supporting our personel" and "join-up now, we have a great Service Covenant you knowhttp://images.ibsrv.net/ibsrv/res/src:www.pprune.org/get/images/smilies/thumbs.gif", is all bolleauxhttp://images.ibsrv.net/ibsrv/res/src:www.pprune.org/get/images/smilies/pukey.gif?

More like that with the wide breath of potential services and details available the advice line would have to be staffed with a number of people who could understand every little nuance of payroll policy, past current and future. The advice line then gets 6 real calls a year.

[Al R]

Yup, agreed 100%. That is one of the new measures of 15 though; scheme members will get annual pension statements as part of a new deal which (one hopes) will be more civvy friendly.

[racedo]

I'm in a similar boat. I just had a similar response from Santander who said they were not able to give an interest-only (re)mortgage relying on the AFPS05 lump sum at 65 as they treated it as an ordinary investment-based pension. I explained that it was not only already set at a known rate but that it was also payable on death but they wouldn't listen.


Always ask for something like this to be referred to the Underwriter or a senior manager if not a result that is good.

This gives person you are dealing with an out in that it is referred elsewhere and also enables people with Decision Making abilities to review, seek further information and make a decision on its merits rather than just mere policy.

Most people will want to do you an offer, subject to it being reasonable but not surprisingly the ability to go outside of policy at junior ranks is frowned upon.

[Whenurhappy]

I've just had a meeting with the local branch manager (a good egg) who is taking forward the issue of the terminal grant as a payment vehicle for the interest-only element of our mortgage. But to confuse the issue, we are letting the house (as we are on a short UK pause in between overseas tours and we would lose CEA if we moved back into the property. CEA underpins our mobility within the MOD). Now the Lender won't consider a further advance unless we kick tenants out even though they are there with the written approval of the lender.

Really helpful.

[Al R]

Bizarre. I don't touch mortgages but I can put you in touch with a Sleaford graduate who does if it's of any help. An investment (Buy to Let) mortgage shouldn't require the same level of redemption awareness as a normal interest only arrangement. I spoke with someone the other week who has almost 350 houses to his name in Manchester, Leeds, Liverpool and Bradford; I'm pretty certain he isn't worth the 'x' million required to redeem that little debt.

[Whenurhappy]

My 'well-known high-street' bank confirmed today that they will no longer accept the AFPS 75 Terminal Grant as a suitable 'repayment vehicle' for an interest only mortage. As of next month I am obliged to turn our interest-only element of the mortgage into repayment, but for the duration that the exisiting mortgage has to run - which is a substantial increase on our monthly mortgage outgoings, albeit at the exisitng interest rate. Other brokers have confirmed that other banks similarly will now not touch Terminal Grants, either.

So for those who have used their Terminal Grant as a form of collateral, expect to be contacted by your lender idc.:\

[Al R]

What does your contract say? Either way, just because the bank tells you what it is going to do, you simply say 'no'.

Tell them that you're making a complaint based on them not applying the principles of TCF (below), that their unreasonable and tardy volte-face will be excessively punitive on you and your family and that as a result, you stand to lose money and possibly your home if you have to default due to the higher monthly charges. I don't imagine they will change their mind - at that point you take it to the Financial Ombudsman Service (FOS).

Treating customers fairly - Financial Conduct Authority (http://www.fca.org.uk/firms/being-regulated/meeting-your-obligations/fair-treatment-of-customers)

I will help you draft a formal complaint in words that might work if you want a steer. The case is that the TG isn't part of the pension, and legal minds within FOS will pick up on that subtlety, in fact - its far less risky than the investments that those scumbags sold in order to cover the interest only portions of in house mortgages anyway! Also, lets face it, applying corporate pressure in order to pick up on relinquished assets isn't exactly unheard of right now..

PS: What bank is it? If it is a 'saved' one, are they saying that public money in the form of a Terminal Grant is no good, but public money that may bail them out, is?

[Onceapilot]

Cheers Al:ok:. I restate my opinions at posts 4, 14 and 16.
What? Military covenant?:yuk:

OAP

[Whenurhappy]

For the record, Lloyds Bank no longer accept Terminal Grant as a 'payment vehicle' for interest only mortgages as they regard it a pension, and require retrospective action if you try to change your mortgage (eg further advance). I've really percevered with the company but a large complaint is inbound to them, and tempted to move all our accounts.

[Gene Genie]

Quite a few years ago, the RAF Benevolent Fund had an Insurance Advisory Service. It may be worth getting in touch with them if they still have that dept. They helped me out with an issue, it may work for you. Hope you get it successfully resolved.

Gene

[Wander00]

May be one for the Forces Pension Society.

[racedo]

Better idea is to contact a pathetic MP, sorry Sympathetic MP and get it raised at PM Qs and watch Banks being called to heel very very quickly.

Call Me Dave and Osborne love to give people a roasting...............

[Whenurhappy]

Things have moved on a bit. The Bank's medja team have been contacted outlining the embarrasment factor surrounding this - and a reply is awaited. Separately a note has gone to my MP...

[Al R]

That was a palavah. Regretably, Forces Pension Society never got back to me - a little annoying as I'm a member too.

In the end the matter meandered and went up to the Head of Credit Services who, by the kind hand of fate, used to sit in the Chater Road/Lloyds Bank portacabin at Wittering 30 years ago, and so his understanding of the TG and AFPS certainly helped. He explained how these days, the bank would accept investments worth in excess of £1,000,000 etc as guarantees. But he did see though, that someone of Whenurhappy's (clearly) impeccable standing, and the financial means which are to hand to discharge his mortgage debt should be taken into account and so, Lloyds will honour the arrangement and take the Terminal Grant as an acceptable security in lieu of a more appropriate investment vehicle.

It won't do it in all cases though, and so there is probably a bit of a struggle to be had in future if you find yourself in a similar position. I think that it's a case of pushing on an open door and that the corporate resistance isn't too strong, so Lloyds will scrutineer, quite closely, the amounts promised, and other factors - such as length of service/rank/career etc will be looked at. I have contacted Whenurhappy, but am posting this so if anyone is in a similar boat, please get in touch. I won't post the e-mail address of the chap at Lloyds, but I am happy to pass it on if anyone is in a similar position. At least the precedent has now been set.

[Onceapilot]

Good work Al. I would have thought that it would be in the service interest to advise financial institutions about the merits of gratuity payments? It must be a free bonus for recruitment and retention?

OAP

[racedo]

Good result, Good work :D:D