industry news
Buy to let interest rate victory will see over £25m paid back to landlords
A
group of buy to let landlords have won a multi million pound payout from a lender who wrongly increased their
interest rates. This ruling may also set a precedent for others to pursue cases against their lenders. The West Bromwich building society faces
paying back over £25m to the landlords after the Court of Appeal ruled it was not legally entitled to vary the landlords’ mortgage interest rates in the absence of a change in the Bank of England base rate. The loans had been set up to track the base
rate throughout their term, but the building society increased the rates in 2013 and continued charging the higher rate.
David and Goliath
The ruling is expected to see roughly 6,000 borrowers compensated in what has been termed a ‘David and Goliath’ legal contest. An average payout of just over £4,000 is expected to be paid although the actual sums will vary according to the size of loan, when it was taken out and the interest rates. It is understood the affected customers took out their loans between 2006 and 2008. The group of landlords who fought and won
the case, called the Property 118 action group, said the ruling “sends a clear message” to other mortgage lenders who might have considered following suit. It added there were around one
million buy to let tracker mortgages that could have been affected if the decision “had gone the wrong way”. The West Bromwich Mortgage Company, a
division of the building society, had increased their interest rates by two percentage points back in 2013. This was despite the fact that the base rate had been at 0.5% since 2009. Some of the landlords affected saw their mortgage rate more than double at a stroke. Initially the Property
and it would be contacting all 6,415 affected borrowers, most of who were not part of the court action, to advise them of the outcome. The society said the borrowers would receive a refund of any additional interest charged. After being saddled
118 action group took their case to the High Court, where they were defeated, but they have now won their case at the Court of Appeal. All were described as “landlords of multiple property portfolios” by the building society. They have now offered to help other landlords who think they may have been similarly wrongly treated.
Reaction
The building society said that while it was “disappointed”, it accepted the court’s decision
“Initially the group of landlords, who have multiple property portfolios, took their case to the High Court but were defeated, but they have now won their case at the Court of Appeal”
with a £27.5m bill following its defeat in the Court of Appeal, a spokesman for West Bromwich Mortgage Company said: “This will not put the society in financial difficulty,” adding “Our financial position remains very strong.” However, the society is now expected to record a loss for the year to March 2017. The building society
had argued that the small print of the mortgages contained a clause that, under
certain circumstances, enabled the lender to change the interest rate “to something more in line with the current market norm”. It said it had acted in part because of the plight of savers, who make up the vast majority of its 446,000 members and had suffered dramatic falls in income due to plummeting interest rates.
www.housingmmonline.co.uk | HMM July 2016 | 13
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