Halifax To Pay £500m To Mortgage Customers - Sky News

6:03pm UK, Monday February 21, 2011

Goldie Momen Putrym, Sky News Online

Halifax is set to pay £500m in compensation after it failed to make clear potential increases on its standard variable rate mortgage to more than half a million customers.

A mortgage advertisement in a Halifax branch window in January 2009

The building society has reached a voluntary agreement with the Financial Services Authority (FSA) because the wording in its mortgage offer documents had the potential to cause confusion.

The issue affected 600,000 customers who were sent mortgage offers between September 20, 2004, and September 16, 2007, and still held that mortgage in January 2009.

The wording of the offers said the interest rate on the Halifax standard variable rate (SVR) mortgage was capped at 2% above the Bank of England base rate.

However this cap was removed from the terms and conditions in September 2007 and the SVR was moved to 3% above the base rate in October 2008 "as a result of extenuating economic circumstances".

Although all customers may have been under the impression that Halifax would contact them if the cap was changed, the phrasing of the offer meant the group only had to contact those customers paying the SVR on part of their mortgage who also had another loan with the group which carried early redemption charges.

Customers were told their monthly repayments were changing, but it was not made clear this was due to a 1% increase in the cap.

Adding to the confusion, the Bank of England base rate began falling rapidly in the period concerned.

Lloyds Banking Group, which owns the building society, said it would contact all those affected and will be offering compensation to around half of them.

It added: "Halifax is committed to operating with the highest levels of integrity and treating customers fairly.

"(We feel) that a proactive co-ordinated programme to contact affected customers and make goodwill payments was the appropriate course of action."

The compensation will be based on the difference between the actual amount paid and what it would have been had the 2% cap remained.

A spokesperson told Sky News Online this will vary between customer and could range between a few pounds to a few thousand pounds.

A FSA spokesperson said: "We have been in discussions with the firm and have agreed the actions they've outlined today."