by Mark Johnston
Halifax has been paying around £500 million in compensation after it emerged that their literature was far to convoluted, complicated and confusing, resulting in about 300,000 homeowners paying more than they had expected to.
In September 2008, in a quite extraordinary move, the Lloyds TSB banking group announced a £12.2 billion take over of one of its main rivals Halifax Bank of Scotland (HBOS). A move that resulted in Lloyds taking ownership of over a quarter of the UK mortgage market and large slices of the personal and commercial banking sectors also.
A bold, and by the beauty of hindsight, quite foolish move when you consider the massive shockwave caused by the credit crisis at the beginning of 2008.
Never the less, Halifax has been accused and they have accepted responsibility for the lack of clarity in their literature issued. Lloyds banking group has “voluntarily” agreed with the Financial Services Authority to address the failure in clarity and redress the situation on certain of its Halifax mortgage products. Lloyds have admitted that the wording of the mortgages letters sent out during the period in question had the potential to cause confusion, specifically the details around the lenders standard variable rate cap.
Variable rate loans are generally a recommended option where it is anticipated that interest rates will continue to decline but in the current economic conditions, with a very low interest rate at the moment, it’s generally accepted that the Bank of England Monetary Policy Committee will raise the base rate within the next 12 months. But low interest rates have and will continue to entice first time buyers into the market with the benefit of initially lower monthly repayments.
Another advantage of the variable mortgage is that qualification entry criteria are somewhat lower than with the fixed rate mortgage offers. Often monthly payments are affordable and allow the borrower to buy a more expensive home. Also, there are often introductory interest rates, which attract the borrower away from fixed rate repayments in favour of these temporary introductory lowered interest rates. In this case, the issue is around the group’s decision to increase their cap on the standard variable rate mortgage from 2 per cent above Bank of England base rate to 3 per cent above the BoE rate. As a variable mortgage owner, you can expect variation but customers complained in this case and their bills varied so significantly on a monthly basis.
Customers who took up a Halifax mortgage offer between 20th September 2004 and 16th September 2007 and who still owned these mortgages in January 2009 will be receiving a letter explaining the situation and hopefully clarifying the borrower’s position. These letters will start going out in April to an estimated 600,000 customers, so read you letter very carefully and if you have any questions – call the help line provided. If you suspect further mistreatment, consider a letter to the Financial Ombudsman Service and a letter to the Financial Service Authority – the regulating body.
Lloyds, under a Halifax error before they were taken over, are expecting to make goodwill payments to something in the region of 300,000 homeowners. These payments of kind are anticipated to cost about £500 million, something that might not have been forecast when they took over Halifax.
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