West Brom Building Society faces £27.5 million bill after landlords win legal battle
The West Brom Building Society faces a £27.5 million bill after losing a long-running court case with a band of property landlords.
The society more than doubled the tracker mortgage interest rate it was charging 6,700 landlords back in 2013, but the Court of Appeal ruled it was wrong to do so.
Handing down the judgment, Lord Justice Hamblin ruled that interest rates on tracker mortgages should only rise with Bank of England base rates.
The decision overturns a High Court ruling in January last year. The West Brom said it was 'disappointed' at the Appeal Court's decision.
The case was sparked by the West Brom's decision to raise interest rates from 1.49 per cent to 3.49 per cent on mortgage tracker borrowers who had loans with West Bromwich Mortgage Company, its now defunct specialist lending arm.
Landlord group Property 118, headed by Norfolk property investor Mark Alexander, raised around £500,000 from 400 landlords and instructed Cotswold Barristers to take on the West Brom.
Writing on the Property 118 website, Mr Alexander said: "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.
"I am extremely grateful to all of the Property118 Action Group members who didn't lose faith in our quest for justice. My win will now be automatically applied to them due to the fact they were represented by my case."
The West Brom said it believed the terms and conditions of the mortgages contained a clause which, under certain circumstances, enabled the lender to change the mortgage interest rate to something more in line with the current market norm.
It said it was acting in the interests of its savers, who had suffered a dramatic fall in income due to lower interest rates following the credit crunch in 2008.
The society says it will be contacting all affected borrowers, including those who had not taken part in the court action, to pay back any additional interest charged.
That is going to mean a £27.5 million hit for the building society which will push it into a loss for the current year, although it says it expects to maintain underlying profitability and its capital position remained strong.
Chief executive Jonathan Westhoff said: "Naturally we are disappointed by today's decision from 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.
"In line with our prudent approach to managing the society we had already allocated capital to cover this unexpected outcome and so the society remains in a strong financial position."
Mr Westhoff said the repayment would slow down the society's planned growth this year.
The West Brom stopped buy-to-let lending after the credit crunch in 2008 as partof its 'back to basics' strategy of concentrating on home loans and savings.
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