This is when a lender has miscalculated mortgage payments such as the length of mortgage and the customer underpays.
Normally the FOS receives 7000 mortgage complaints every year with 100 to 200 regarding mortgage underfunding but has seen an increase.
In July Yorkshire and Clydesdale banks apologised to 18,000 customers after monthly payments were calculated lower than expected.
In its Ombudsman news the FOS sets out its policy for redress in such cases.
It says that when the lender is entirely to blame – such as the borrower was unaware he or she was paying the wrong amount – then the amount should be written off and the customer should only pay the higher rate from the day of reporting.
But if the lender is not entirely to blame – such as if the borrower knew the payment was low but kept quiet – then the past ‘savings’ must be paid back to the bank.