West Brom defeat paves way for more court cases
The mortgage market faces a wave of litigation and possible consumer compensation after West Brom Building Society lost a landmark court battle last week.
The case centred on whether the lender was right to raise interest rates on buy-to-let tracker mortgages without a rise in the Bank of England base rate.
The findings of the case could set a precedent for how the wider mortgage market determines the rates paid by borrowers.
The case, brought by landlord group Property 118, also disputed West Brom’s claim to the right to call in mortgages with one months notice.
Handing down the judgment at the Court of Appeal last week, Lord Justice Hamblen said interest rates on the affected mortgages should rise only with Bank base rate. He added that West Brom could not require a landlord to repay their mortgage with just one months notice.
Lord Justice Leveson and Lady Justice Sharp agreed with Hamblen’s decisions.
West Brom said it was “disappointed” by the court’s decision and would repay £27.5m to its borrowers. The figure includes compensation for customers who remortgaged away from West Brom, according to a spokesman.
West Brom chief executive Jonathan Westhoff said: “At all times we acted to ensure we were treating customers fairly and our approach was in the best interests of the society and its members as a whole.”
Property 118 founder Mark Alexander was “elated” at the court’s decision. He said: “This ruling sends a clear message to other lenders that have acted in a similar manner, and to those that might have been considering following suit.”
Property 118 is now raising money to bring similar cases against Bank of Ireland, Skipton Building Society and Manchester Building Society, which it says also have acted unlawfully.
Bol raised rates on 13,500 base rate tracker mortgage customers in February 2013. In 2012 Manchester Building Society raised tracker rates for some borrowers by up to 1.5 per cent.
Skipton Building Society, meanwhile, hiked its SVR on residential mortgages from 3.5 percent to 4.95 per cent in 2010.
However, Skipton defends its rate hike as both lawful and unavoidable. It adds that the findings of the West Brom case are not transferable.
A Skipton statement says: “We note that the recent decision of the Court of Appeal in the Alexander v West Bromwich Mortgage Company Ltd case was very fact specific to the offer letter and terms and conditions of business used by that society at the relevant time and is not of any wider application.”
The Building Societies Association agrees that the West Brom case is isolated and does not set a precedent that applies to other lenders.
A BSA spokeswoman says: “The Appeal Court judgment was an interpretation of a contract relating to a particular set of documents.”
The case began when landlord group Property 118 questioned a decision by West Brom in September 2013 to increase its tracker rate without a base rate rise.
At the time the lender told 6,700 landlords it would increase rates from 1.49 per cent to 3.49 per cent from 1 December 2013. The borrowers all had loans with West Bromwich Mortgage Company, its now-defunct specialist lending arm.
The rise meant some landlords saw the interest rate double on their mortgages. Property 118 launched legal action against West Brom in the High Court in November 2013.
Post courtesy of Mortgage Strategy.