Norwich Union could face compensation calls after raising the rates on its equity-release mortgage, with some borrowers having to pay 0.2 per cent over the rate they were originally quoted.
Brokers have been warning for some time that consumers taking out the NU product could end up having to pay a higher interest rate when the advance is released than the rate they applied for.
NU has defended itself on this point, saying it is more likely that rates would go down than go up, but the upward movement in long-term interest rates has led it to hike its rates.
Borrowers, who will have applied on one rate and incurred significant costs, could end up having to pay 0.2 per cent more for the life of the loan.
The rate rise is effective from November 24. Introduced business will now pay 7.35 per cent up from 7.15 per cent while direct business will pay 7.49 per cent up from 7.29 per cent.
Charcol senior technical manager Ray Boulger says: “I hope that Norwich Union made the possibility of a rate change clear when the applications were made as otherwise I think some borrowers might choose to seek compensation.”
NU head of marketing Paul Stokes says: “We started notifying those with applications in the pipeline about the rate change in early October. There is no reason why people would not be able to complete in this time.”