When a lender slips up over the repayments

The mess institutions can get themselves into when calculating mortgage repayments is well illustrated by the case of Oxford woman, Joy Hawthorne, who took out a £45,000 mortgage with the Woolwich in 1989.

She was one of the sensible people who didn't fall for the spiel about endowments, so common in the late 1980s and early 1990s, and decided on a mortgage where she would repay the capital on a regular basis.

For the first three years everything went fine, then in 1992 when interest rates soared to around 12% she briefly fell into arrears. Soon afterwards she started repaying the arrears by increasing her monthly payment and by

1998 thought she had put that problem completely behind her.

Indeed, she had been pleasantly surprised when in 1996 the Woolwich told her to drop her monthly payment substantially. She assumed this was just in line with the general downwards trend in interest rates around that time, and that the Woolwich was being a little more generous than most in the run up to its demutualisation.

Like most mortgage holders she did not look very closely at her annual statement. Had she done so, she might have realised that in fact the Woolwich was no longer taking any capital repayment from her, and that this reduction meant she was only paying interest.

Although the statements did show the outstanding sum was no longer reducing, they, incorrectly, continued to describe the mortgage as being on a repayment basis.

The problem only came to light last year when, having decided to study for an MBA, she enquired about transferring to a new flexible mortgage the Woolwich was offering, which would have enabled her to vary her repayments.

She was outraged to then discover that her present repayment arrangements meant the outstanding debt would never go down, and that at the end of the 25-year term she would owe just as much as when she started.

"I thought this was totally unfair," she said, "I had a contract to pay what they demanded in return for them treating the mortgage as repaid in 2014."

While this is Ms Hawthorne's gut reaction, rather than a reasoned legal argument, it is probably right. The amount that should be paid at any given time to repay the mortgage is not written in tablets of stone. The Woolwich was entitled to charge its standard rate but, if it charged less, that simply amounted to a bonus for the customer.

Commercial organisations that undercharge can rarely recover the resulting arrears. One of the cases best known to English lawyers concerned a block of flats known as High Trees House. The landlords reduced the rent payable during Second World War from the level they were entitled to.

After the war they tried to sue for the full amount. The principle was stated by Lord Denning, deciding the claim, that once someone has undercharged, and another person has relied on that under- charging, that means the full amount is no longer payable.

When Ms Hathorne put her reaction to the local branch, and later the centre in Bedford which deals with mortgage calculations, the point was rather lost on the staff.

After a close examination of the records they did accept she had never consented to her mortgage being transferred to an interest-only basis.

However, Ms Hawthorne says: "Their attitude was still one of: the problem will go away by itself. The only solution they would suggest was that I pay an extra £100 per month to catch up."

When Jobs & Money contacted the Woolwich, it readily accepted the problem was rather more complicated than that. Indeed, it took more than a week to gather up all the papers relating to her case and then a senior analyst spent three days working out what had gone wrong.

The Woolwich then agreed Ms Hawthorne was entitled to redress. Its provisional calculation was that she had deserved to be credited by £1,829 with a further ex gratia payment of £421.

It used a completely different - and totally incomprehensible - formulation to mine, but the net result was about the same. Although there may still be some haggling to be done, she was eventually treated fairly.

• Richard Colbey is a barrister