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Lloyds to conduct £500m mortgage past business review

Lloyds Banking Group has agreed with the FSA to undertake a review of past mortgage contracts which could cost the lender up to £500m.

Halifax will write to approximately 600,000 customers from April 2011. Through the contact programme the lender expects to make goodwill payments to around 300,000 customers.

In a statement to the stockmarket this morning, Lloyds says the review will look at Halifax mortgage customers who may have been confused by the wording on mortgage offer documents.

The potential confusion relates to wording found in the mortgage offer document which summarises the Halifax standard variable rate cap. It affects borrowers who were on SVR and who had an early repayment charge in their mortgage.

In September 2007 the lender removed a cap summary, which was included in the offer document between September 2004 and September 2007, on the back of regulatory guidance. The lender then changed the cap from 2 per cent to 3 per cent above base rate in October 2008, due to “extenuating economic circumstances”.

The bank will offer goodwill payments of £250 to borrowers on SVR and who had an ERC as an acknowledgement that it was unclear how the cap affected their mortgage. It will also offer a goodwill payment of the 1 per cent balance between the two cap rates to those borrowers on SVR who thought they should have been on a lower rate.

The programme aims to ensure customers are fully aware of what the SVR cap is and how it relates to their borrowing.

Bank of Scotland has applied for a voluntary variation of permission to carry out the customer review and contact programme.

LBG says it has made a provision of £500m for the programme within its 2010 accounts.


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Those fun loving, customer champions.The high street banks are at it again !!!

  2. What are they afraid of? Nobody pays that total amount out as a “goodwill” gesture!

  3. What about the Shared Appreciation “Mortgages” – loans made for white goods and supplementing income that, as a simple secured loan at under £25,000 should have been covered by the Consumer Credit Act. That way the outrageous interest accrued would not have been allowed. But when you are selling to pensioners by post, who cares about the rules HBOS?

  4. There is perhaps a wider issue here. All the statements speak of confusion and it seems to be being presented as akin to mis-selling by omitting to flag an issue. Having had a look at the definitions in the Terms and Conditions in use at the time there is a clear tension between the use of the word “cap” and the figure of 2% in the series of definitions that get you to the SVR (on the one hand) and the power to vary any term of the deal, on the other.

    Insofar as there is tension between an apparent stated cap and a power to alter (at their discretion) there is a potential contractual dispute. It is therefore not a mis-selling issue but a breach of contract issue. Either Halifax could change the “cap” and hence owes no-one any money or they could not change the cap and not only need to refund money but put their SVR down for many people.

    Why would Halifax agree to this deal (with this level of compensation) if they genuinely felt there was a contractually defensible right to change any term, including a term that let them get out of a bad deal.

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