$97k to break fixed mortgage

Westpac is under fire for trying to ratchet a homeowner's mortgage break fee by more than 500 per cent. Photo / Martin Sykes

A homeowner with written assurance from his bank that he would pay just three months' penalty interest to break his fixed mortgage has been slapped with a demand for nearly $100,000 - a 500 per cent increase on what he expected.

Westpac is refusing to budge on its break fee demand, which leapt from the $16,000 Auckland homeowner David Gordon calculated he owed, to $67,000 when he asked about breaking the fixed term in early December last year. Between December and February, while Gordon attempted unsuccessfully to negotiate with the bank, Westpac upped the fee to $97,000.

While Gordon awaits a ruling on a complaint made to the Banking Ombudsman in February, he faces the likelihood of a mortgagee sale on his central Auckland apartment.

Westpac has dug its toes in for eight months, insisting it will not be bound by an email sent to Gordon from one of its Auckland mortgage managers, Stephen Meredith, in June 2007, which states the fee to break the loan term would be $100 plus a maximum of three months' penalty interest.

Instead, Westpac says a loan document Gordon signed two weeks after being advised of the break fee cap by the bank allows it to charge $97,000 to change the terms of the $735,000 mortgage.

Gordon's lawyer, Steve Bonnar, says Westpac is in breach of the Fair Trading Act. Bonnar says Westpac's conduct is "at the very least misleading, arguably deceptive, and was undoubtedly likely to mislead or deceive".

Consumers Institute chief executive Sue Chetwin said: "If a customer has something in writing from Westpac that conflicts with the break fee information in their loan contract and what Westpac is now saying, that written advice will stand."

In a letter to the Ombudsman's office on March 9, Westpac customer advocacy manager Ian Crichton said: "The bank has acknowledged the email sent to the complainant that incorrectly advised that any prepayment cost would be limited to the equivalent of three months' interest."

But Westpac spokesman Craig Dowling said the home loan agreement states a pre-payment cost may arise and outlines how it would be calculated.

"The agreement also provides that it replaces any earlier representations. A customer is always provided with the agreement for review before it is signed."

Gordon said the original break fee advice from Westpac's Stephen Meredith was "the key driver of the decision to enter the mortgage".

Gordon, who co-owns the home with his best friend, said the dispute was causing "serious financial ramifications".

They formed a company to buy the home in March 2007 after flatting together for five years.

"We are at a point of not being able to meet our monthly repayments. It is likely we can fund only one more payment before we will start defaulting on our mortgage payments."

The current cost of the mortgage, fixed at 8.95 per cent, is $5900 a month.

If the rate was reset at 5.5 per cent, that would drop to $4100, saving $1800 a month.

That equates to about $10,000 in additional interest paid since the complaint was first made to the Banking Ombudsman, or $16,000 from when Gordon first asked to break the fixed term.

Gordon said he wants Westpac to apply a break fee in line with what Meredith's original email said it would be, and for the fee to be capitalised onto the loan.

He also wants the bank to return the extra interest paid since he first asked to break the mortgage in December.

The Commerce Commission has investigated break fees to see if they comply with the Credit Contracts and Consumer Finance Act and the Fair Trading Act. It cleared ASB, SBS, BNZ and the National Bank but is still investigating ANZ, Kiwibank and Westpac.