Santander to compensate Abbey mortgage customers
Santander is being forced to inform more than 270,000 Abbey mortgage customers they may be entitled to compensation.
The Financial Conduct Authority (FCA) has found the bank failed to deliver clear information to its Abbey customers before increasing the cap their mortgages' standard variable rate (SVR) in 2008.
When the Bank of England cut base rate by one percentage point from 3% to 2% in December 2008, Abbey only reduced its SVR by half a percentage point.
Letters sent to customers at the time should have made it clear that they were free to move their mortgage to another provider offering a better rate, without having to pay an early repayment charge.
But the correspondence failed to do this and many borrowers were left to think they had no alternative but to accept the new rate.
In a statement, the FCA said: "The letters it sent were not clear so borrowers may not have understood what was going to happen, how this was going to affect them and the options open to them. Some borrowers did not receive a letter at all."
Santander will start contacting customers who might have been affected from Monday but it could take until autumn for everyone to be contacted.
Those mortgage borrowers who could have moved to a better deal will be those compensated and Santander has set aside £232 million to settle claims.
The bank insists no former Alliance & Leicester customers are affected - just Abbey customers who had a balance outstanding on their mortgage during December 2008.
For more information, visit www.santander-products.co.uk/capmargin.
Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.