Lloyds to carry out £500m mortgage review

Lloyds Banking Group is to carry out a costly mortgage review of past contracts as part of an agreement with the FCA – a process that could cost the lender up to £500m.

lloyds_banking_group_logoLloyds Banking Group is to carry out a costly mortgage review of past contracts as part of an agreement with the FCA – a process that could cost the lender up to £500m.

Lloyds revealed in a statement to the stock market that the review will look at Halifax mortgage customers who may have been confused by the wording on mortgage offer documents. This document summarizes the Halifax standard variable rate cap and may have caused Halifax customers to think they were paying a lower interest rate than they actually were.

Halifax will write to approximately 600,000 customers from April 2011. Through this contact programme the lender expects to make goodwill payments to around 300,000 customers.

The cap summary was included in the offer document of Mortgage contracts since September 2004 but, on the back of regulatory guidance, it was removed in September 2007. The lender then changed the cap from 2 per cent to 3 per cent above base rate in October 2008, due to “extenuating economic circumstances”.

The contact programme aims at ensuring that customers are aware of what the SVR cap is and how it relates to their borrowing.

The relevant mortgages were written between 2004 and 2007 by Bank of Scotland, under the Halifax brand. The bank says goodwill payments will be made to the affected customers.

The bank will offer £250 to borrowers on SVR and who had an ERC as an acknowledgement that it was unclear how the cap affected their mortgage. It will also offer a goodwill payment of the 1 per cent balance between the two cap rates to those borrowers on SVR who were unaffected by the change but thought they were.

Bank of Scotland has applied for a voluntary variation of permission to carry out the customer review and contact programme.

The FCA says: “The group is committed to running its business with the highest levels of integrity and treating its customers fairly.”

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