by Mark Johnston
Santander to Contact Customers.
The bank of England base rate began to fall at the end of 2007 and continued to fall quickly in 2008 with the rate dropping by 3 percentage points between September and December 2008.
However, along with other banks Santander decided not to pass these drops on to their customers, instead they kept their standard variable rates (SVR) higher.
So in 2008 the bank then decided to raise the cap on some of its standard variable rate (SVR) mortgages to 3.75 percentage points above bank rate.
The cap is the upper limit to which a lender can increase its standard variable rate (SVR) when an introductory deal ends.
This alteration did mean however that some mortgage customers were allowed to move their loan without penalty for a 3 month period.
It now appears though that Santander did not clearly explain what was happening, how it was going to affect borrowers and also the options that were open to customers affected by the change. Some borrowers did not even receive a letter at all.
So with the Financial Conduct Authority (FCA) launching this month with a pledge to protect consumers more effectively than its predecessor, it is no wonder that the city watchdog has therefore ordered the bank to contact around 270,000 customers regarding this change.
The Financial Conduct Authority (FCA) feels that the previous information given to borrowers by Santander was ‘unclear’ and it therefore wants the bank to fully explain what happened in order to give its customers a chance to complain.
A Santander spokesperson said “we acknowledge the original mailing did not provide the clarity that our customers should expect from us. We are sorry for any lack of understanding the original mailing may have caused”.
The bank have also agreed to set up a dedicated phone line in order to help customers that have any questions.
It seems that the borrowers who were most at risk of losing out with the change were those who held Abbey mortgages in 2008 as these included both the standard variable rate (SVR) cap and also a further clause that meant they would be tied in to paying the standard variable rate (SVR) for a period after a fixed term period ended.
However, while a large number of people are to be contacted it is likely that only a minority of borrowers, some 30,000, may be entitled to some compensation, which could range from £20 to more than £1,000.
Whether borrowers have lost out financially will depend on individuals circumstances at the time, meaning compensation largely depends on whether or not customers could have moved to a better deal.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says “standard variable rates should be outlawed because they lack transparency. They can rise at the lenders discretion, even when there is no movement in base rate, causing huge confusion for borrowers. At the end of an introductory rate, the mortgage should always revert to a rate or pricing that is linked to base rate to ensure there is no possible manipulation on the part of the lender”.
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