Halifax has agreed to pay compensation of £500m to an estimated 300,000 mortgage customers after admitting that wording to explain its interest-rate cap was confusing.
The cap on its standard-variable rate (SVR), which borrowers usually revert to after an initial deal has ended, was originally set at 2% above the Bank of England base rate but was changed to 3% above base rate from 31 October 2008.
Halifax’s general mortgage terms and conditions stated that the cap, above which the SVR could not rise, only applied to borrowers who would have to pay early repayment charges to switch their mortgage and that the cap could change if Halifax gave notice to customers.
The bank has accepted that additional wording in mortgage offer documents sent out between 20 September 2004 and 16 September 2007 had the potential to cause confusion about whether the cap also applied to customers who were not locked in by charges.
However, it claims that the same wording sent to customers in a document called ‘Information about your mortgage’ as early as 2001 did not have the potential to confuse.
The wording in the documents said: ‘We have set a limit on the Halifax Standard Variable Rate so that it will not be more than 2% above Bank of England base rate.’ It then went on to set out the terms under which it could alter the cap for customers subject to early repayment charges.
Halifax has agreed to pay compensation to customers who took out a mortgage based on the relevant offer documents issued between 20 September 2004 and 16 September 2007 and who were paying the SVR or a rate linked to the SVR after Halifax changed its policy on the cap at the end of 2008.
It will pay £250 to all customers locked into the SVR by charges. Customers who are not locked in will receive the difference between the amount of mortgage interest they have been charged since 1 January 2009 and what they would have paid if the interest rate had been capped at 2% above base rate.
Former customers will receive a cheque. Current customers will have their mortgage balance reduced by the amount but can ask for the compensation by cheque instead.
Halifax will write to 600,000 customers who could be affected so if you are one of them you do not need to take any action immediately. However, if you were previously a Halifax customer you should check it has your up-to-date contact details.
The bank has been in discussion with the Financial Services Authority (FSA) about this issue for at least a year. The FSA has allowed Halifax to continue to charge an SVR of 3.5% and also set out terms under which Halifax can vary the cap in future.
Which? principal policy adviser Dominic Lindley said: ‘In our view these give Halifax such large discretion to vary the cap that there is little point calling it a cap in the first place. Consumers need to check with their lender what discretion it has to vary its SVR.’
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