Disputes about the terms and conditions of fixed rate loans are on the rise, with a large number of borrowers complaining there was inadequate disclosure about the break costs involved in discharging their loan before the end of the fixed rate period.
The Credit Ombudsman Service has written to its members advising them there has been a “surge” in complaints from borrowers who fixed their rates.
The cash rate reached a peak of 7.25 per cent in March 2008, following a period of rate increases that started in 2002.
Fixed rate loans became a popular option in response to this trend, but then the financial crisis caused the cash rate to fall back to three per cent, by April 2009, prompting a large number of borrowers to break their fixed rate terms.
According to COS, common complaints from borrowers are that they were not advised of the break costs when they entered into the loan; indicative break costs were different to the actual charge, and they were not advised by their old or new lender that break costs would be payable when they refinanced.
COS has provided some guidance for lenders and brokers, recommending that they make specific reference to the risks of taking on a fixed rate loan.
They should also explain that a fixed rate loan does not have some of the features of a variable rate loan, such as offset and redraw facilities, or the flexibility to make extra payments.