Landlords to get £27.5m payout from West Bromwich
Thousands of landlords will be refunded about £27.5 million after West Bromwich Mortgage Company, a subsidiary of West Bromwich Building Society, was found guilty of unfairly upping the rate on its buy-to-let tracker mortgages.
In September 2013, West Bromwich Mortgage Company wrote to 6,415 multi-property buy-to-let mortgage borrowers who took out a mortgage with the lender prior to 2008, advising them that their lifetime buy-to-let tracker mortgages would go up by 1.9%.
This was despite the fact that tracker rates are meant to follow the Bank of England base rate, which has remained at 0.5% since 2009.
The increased rate of 1.9% was applied from 1 December 2013. This sum gradually reduced until it was 1.1% at the time of the judgement.
But the Court of Appeal has this week ruled in favour of borrowers after Mark Robert Alexander, a former mortgage broker who set up the Property 118 Action Group, challenged an earlier decision made against him in the case.
Writing on Property118’s website, Mr Alexander says: “West Bromwich Mortgage Company was not legally entitled to vary our mortgage interest rates in the absence of a change in the Bank of England base rates which our mortgages track ‘to the term end’.
“This ruling sends a clear message to other lenders who have acted in a similar manner, and to those who might have been considering following suit. There are thought to be in the region of one million tracker buy-to-let mortgages, which could have been affected in this case had gone the wrong way,” he adds.
West Bromwich Building Society says all affected borrowers, including those who have since paid off their mortgages, will receive a letter today confirming that they will get a refund. It says it has already allocated capital to cover reimbursement costs.
Jonathan Westhoff, the society’s chief executive, says: “Naturally, we are disappointed by the decision of the Court of Appeal. At all times, we acted to ensure we were treating customers fairly and that our approach was in the best interests of the Society and its members as a whole.”
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
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.