Friday, 19 April 2013

Compensation for 30,000 Santander borrowers

30,000 Santander mortgage customers could be eligible for compensation, after the bank failed in December 2008 to tell them they they would be able to cash in their mortgages without penalty.

The bank had changed the terms of the mortgages, to allow itself to keep interest rates higher - but didn't inform borrowers clearly that they had 3 months to switch to another lender if they wanted.

Santander would not give details on the extent of the compensation. It's likely that payments will range from several hundred to several thousand pounds, depending on the size of the mortgage.

The bank set aside £232m at the end of last year to cover this issue along with several others.

Santander is writing to write to 270,000 customers with mortgages under the Abbey brand that they may not have been given adequate information about their rights.

It'll, then be up to the customers to complain if they think they might have lost out.


Santander had fixed rates with an Early Repayment Charge (ERC) which extended across the fixed rate period and into the time afterwards when the loan turned into a Standard Variable Rate (SVR) mortgage.

So, for example, you might have 2 yrs fixed and 2 yrs on an SVR with an ERC. Those terms look pretty surprising since it is common practice for SVR mortgages NOT to have the repayment penalty.

They had a limit on how high the SVR could rise above the Bank of England's base rate, what they called the SVR cap margin.

In December 2008, they raised the SVR cap margin from 2.5% to 3.75%, while also cutting the SVR because Bank base rate was on the way down.

It's complicated, I know. The result was that the SVR was reduced but by less than it would have been under the old terms.

SVR fell from 5.44% to 4.94%, rather than to a maximum of 4.5% under the old terms.

So the unwitting borrower was paying more and might not have realised that there was a 3 month window in which the affected customers could switch to a better deal from another lender, without penalty.

The 3 months kicked in during the SVR or, if you were still on the fix, once it turned into an SVR. That might have been after December.

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