MortgagesJun 15 2016

West Brom must pay £27.5m to compensate landlords

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West Brom must pay £27.5m to compensate landlords

The Court of Appeal has ruled that West Bromwich Building Society was wrong to vary mortgage interest rates in the absence of a change in the Bank of England base rate.

West Bromwich Building Society was taken to court by landlords over an increase in their tracker mortgage rates.

Mark Alexander, who runs Property 118 Action Group, representing 350 buy-to-let (BTL) landlords, accused the building society of increasing the interest rate on their mortgages by nearly 2 per cent from December 2013.

The landlords claimed West Bromwich’s tracker mortgages were sold on the basis that the interest rate would be fixed to the Bank of England’s base rate, which has remained at 0.5 per cent since March 2009.

But the building society said clauses in their standard terms and conditions allowed it the discretion to change the rate to reflect market conditions, even when the Bank of England’s base rate remained fixed.

Mr Justice Teare sided with the lender in a ruling at the Commercial Court in January 2015, but Mr Alexander won the right to appeal and raised more than £500,000 to take the case to the Court of Appeal.

On 8 June, the Court of Appeal overturned Mr Justice Teare’s decision.

The decision affects landlords who took out their mortgage up to 2008, and West Bromwich Building Society has been ordered to reimburse those affected, which should cost £27.5m.

The one-off cost will result in the society recording a loss for the year to March 2017, although underlying profitability is expected to be maintained, and according to the lender’s bosses the capital position of the society remains strong.

Jonathan Westhoff, chief executive of West Bromwich Building Society, said he accepted the court’s decision. He said his board had acted in accordance with its overarching duties to treat customers fairly and to act in the best interests of members as a whole, savers as well as borrowers.

Danny Matthews, mortgage adviser and podcaster, said: “Lenders find it hard enough to build trust, and this sort of story will not help that situation.”