Lender Set to Pay Out £19 Million in Mortgage Blunder

by Mark Johnston

Earlier this year thousands of already cash strapped borrowers faced increases to their monthly mortgage payments due to an error caused by Clydesdale and Yorkshire Bank. The Glasgow based bank is now set to have to pay up to £19 million as a result of their blunder.

Around 18,000 customers of the two banks who currently held variable and tracker rate mortgages were affected by the error. Both banks are owned by National Australia Bank (NAB). NAB took over The Clydesdale back in 1987 when midland sold its UK subsidiaries. The Yorkshire Bank was taken over in 2001by Clydesdale and has retained its mostly Yorkshire based branches and its name.

The error is a result of the two banks calculating capital payments incorrectly. The miscalculation resulted in both banks collecting less than the minimum monthly payment. This was made worse by the record low interest rates. These underpayments have led to many of its customers having shortfalls on their mortgages which means they will not pay off their mortgages within the agreed term.

Since the news hit the headlines back in July, the bank has been fighting a losing battle against claims lodged by their customers. The financial ombudsman service which looks after complaints and financial claims within the financial services industry is pushing the bank the cover the missing payments. The bill is estimated to be up to £19 million.

When the error was first uncovered both the Clydesdale and Yorkshire bank asked their customers to make up the missing payments. Although they admitted the mistake was caused by their own miscalculation, they took the view that it was their customers responsibility to pay back any shortfall.

Although some customers have paid back the money, others have referred their case onto the Financial Ombudsman Service for review. As many expected, the Ombudsman agreed with the customers as they usually rule that mortgage lenders are responsible for any such mistakes.

As spokesperson for the Financial Ombudsman Service said: “A typical case where we would be likely to decide that the lender is entirely to blame is where the mortgage offer itself quoted an incorrect lower monthly repayment, the consumer paid that amount in good faith, believing it to be correct, and the consumer raised the matter with the lender as soon as the discrepancy became obvious. In cases like this, our usual approach is to tell the lender to write off the capital shortfall that has built up, to the date when the mistake was sorted out.”

Both the Bank and the Financial Ombudsman have said they will look at every case on an individual basis. A spokesman said: “The ombudsman’s office makes its decisions and we apply them. We continue to look at every case on its own merits. Where customers tell us that they have been having financial difficulties, we look to help with that.”

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