West Brom set for £27m hit after legal defeat


West Bromwich Building Society will repay £27.5m to its borrowers after losing a legal battle over buy-to-let tracker rates.

A West Bromwich statement says the payment is likely to mean the lender posts a loss for the year to 2017, but that the firm’s underlying profitablity is good.

A Court of Appeal judgment today found West Bromwich should not have raised its interest rates in 2013 without a rise in Bank of England base rate.

The judgement also found the lender could not call in its mortgages with one month’s notice.

The appeal was brought by landlord group Property 118 and overturns an earlier High Court judgment that sided with West Bromwich.

The West Bromwich statement says: “While we are disappointed, we accept the Court of Appeal’s decision and so will be contacting all affected borrowers, including those who were not part of this action, to advise them of the outcome and that we will be reimbursing them any additional interest charged.

“Other saving or borrowing members do not need to take any action as a result of this news.
The one-off cost of this will be approximately £27.5m.”

West Bromwich chief executive Jonathan Westhoff says: “Naturally we are disappointed by today’s decision from the Court of Appeal. At all times we acted to ensure we were treating customers fairly and that our approach was in the best interests of the society and its members as a whole.

“In line with our prudent approach to managing the society we had already allocated capital to cover this unexpected outcome and so the society remains in a strong financial position.”

The statement says the original rise was permitted in mortgage contract wording and was necessary to reflect market conditions.

It says: “The terms and conditions of these mortgages contain a clause which, under certain circumstances, enables the lender to change the mortgage interest rate to something more in line with the current market norm.

“Savers, who represent the vast majority of the society’s members, have suffered a dramatic fall in income due to lower interest rates.

“The board of the society therefore 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.

“After careful consideration and in response to the unprecedented reduction in interest rates over recent years and the increased relative cost in providing these loans, the society could not, in order to protect the best interests of members, ignore this clause.”

Property 118 founder Mark Smith says he is “elated” at the court’s decision.

He says: “This ruling sends a clear message to other lenders who have acted in a similar manner, and to those who might have been considering following suit.

“There are thought to be in the region of one million tracker buy-to-let mortgages which could have been affected if this case had gone the wrong way.

“I am extremely grateful to all of the Property118 Action Group members who didn’t lose faith in our quest for justice. My win will now be automatically applied to them due to the fact they were represented by my case. It remains to be seen as to whether West Brom will apply the ruling to borrowers who were not represented by my case.”