Mortgage lender chaos after rates ruling; Extra staff drafted in as

0 Comments | Sunday Herald, The, Feb 3, 2002 | by Teresa Hunter

What to do about your mortgage....

Borrowers with cut-priced standard variable rates:

nothing to complain about Borrowers with higher standard variable rates linked to old-style may qualify for compensation in specific cases: consider complaining if your deal is:

capped l discounted l trackers bank base rate Borrowers whose discount was ending and were about to switch onto a cut-price variable rate:

complain to the Ombudsman; his decision may have cost you money.

BRITAIN'S biggest mortgage lender, the Halifax, was swamped with more than 12,000 calls a day last week from alarmed borrowers, after a decision from a watchdog criticising its pricing strategy.

The Edinburgh-based bank was forced to draft in 300 staff to handle telephone queries from distressed customers. The Nationwide, Abbey National and HSBC, which were subject to similar criticism from the Financial Ombudsman also received thousands of calls.

Pandemonium broke out after Ombudsman Walter Merricks ruled that lenders could not offer lower mortgage rates to different groups of customers, which has opened the flood gates to claims for compensation. This decision followed complaints from borrowers who, having already signed up to old-style discount or capped loans, believed they were being discriminated against, because these deals were not linked to new-style cut-price loans. Lenders argue these borrowers were already getting good deals, specifically priced to be linked to a slightly-higher rate.

Furthermore, most would be worse off by switching to the new range of loans, because when rates fell so did discounts.

Nationwide, for example, used to offer discounts of 1.5% off its standard variable rate (SVR) of 5.24%. This reduced the rate borrowers were paying to 3.74%, allowing customers to chalk up a big saving compared with other banks which were typically charging 5.75%. When it cut its rate for all borrowers (except those tied to specific deals) to between 4.74% and 4.94%, depending on the size of the deposit, it trimmed its discounts as well. However, a borrower complained his 1.5% discount should come off the 4.74% rate, giving him an effective rate of 3.24%. The Ombudsman has supported his complaint.

Other lenders were quick to denounce their competitors. David Anderson, of Yorkshire Building Society, went on TV to decry the way existing customers were paying the price for these deals. Yet at Yorkshire, borrowers pay 5.45%, considerably higher than the complaining Nationwide borrower. Furthermore, the Nationwide had deliberately set out to ensure fairness between groups of customers and switched all borrowers, apart from those with lock-ins, on to the new loan.

A Nationwide spokesman said: "We are very disappointed. We specifically set out to construct a fair mortgage strategy, whereby no borrower was subsidising another. It is hard to know where to go from here."

Similarly, at HSBC, no borrower on any kind of variable deal, regardless of when it was taken out, is paying more than 4.75%, significantly less than the rest of the market.

The Halifax ruling was slightly different, in that it applied to capped mortgages and to one specific deal. A Halifax spokesman said: "At most, we believe we may have 2000 borrowers on this scheme." However, when put together, these rulings are likely to trigger an avalanche of calls for compensation from any borrower who, having signed up for a specific deal, decides he would like to switch to a new one.

Halifax responded promptly by withdrawing its lower SVR of 5%, again well below the Yorkshire's 5.45%, and replacing it with a tracker loan at 1% above base rate, charging a not-unfamiliar 5%.

Nationwide has given itself a month to decide how to respond. One option is to go for judicial review. It is believed the Halifax has not ruled out future legal action against the ombudsman.

The Abbey National's decision was only a preliminary judgment, against which the bank may lodge an appeal. Its case hinged on two trackers with a price differential of 0.1%, reflecting additional features.

The Ombudsman's office attempted to calm the panic by stressing its decisions were based on the individual wording of each contract and could not be taken as a signal that millions could benefit.

A spokesman said: "The first thing people need to do is look at the kind of loan they have and what they are paying. If they are unsure, they can chat things over with their local branch. "In most cases, their mortgage will be suitable and they will understand what they have signed up for. If they are not happy, then they should complain to their lender."

An HSBC spokesman said: "Our concern is this will cause a crisis of confidence in the industry. It is not in borrowers' interests for them to become worried and distrustful of their lender."