West Brom Building Society faces £27.5m payout after Court of Appeal ruling
THE West Bromwich Building Society faces having to pay back £27.5m to a group of landlords after losing a legal battle.
It has already braced its members to expect a loss for the financial year to March 2017.
The Court of Appeal has overturned a ruling made by the High Court last year in the case of Mark Robert Alexander, of the ‘Property 118 Action Group’ and West Bromwich Mortgage Company Ltd, a wholly-owned subsidiary of the building society.
The judgement relates to the decision taken in 2013 by the West Bromwich Mortgage Company to vary the interest rate margin charged for certain multi-property landlords in line with the terms and conditions of their buy-to-let mortgages.
The ruling affects landlords who took out their mortgage up to 2008.
The terms and conditions of these mortgages contain a clause which, under certain circumstances, enables the lender to change the mortgage interest rate to something more in line with the current market norm.
The society said savers, who represent the vast majority of its members, had suffered a dramatic fall in income due to lower interest rates.
The society’s board said it had been acting in the best interests of its members in taking the decision.
In a statement, the society said: “After careful consideration and in response to the unprecedented reduction in interest rates over recent years and the increased relative cost in providing these loans, the society could not, in order to protect the best interests of members, ignore this clause. The Court of Appeal has today ruled that the relevant clause is inapplicable in these cases.
“While we are disappointed, we accept the Court of Appeal’s decision and so will be contacting all affected borrowers, including those who were not part of this action, to advise them of the outcome and that we will be reimbursing them any additional interest charged.”
It said savers and borrowers would not need to take any action as a result of the court’s decision.
However, the one-off cost of the ruling to the mutual will be approximately £27.5m.
The society said that although the ruling would result in it recording a loss for the year to March 2017, underlying profitability was expected to be maintained and the capital position of the society remained strong and significantly in excess of regulatory requirements.
Jonathan Westhoff, Chief Executive, 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.
“We will now contact all affected borrowers and ensure we process promptly any reimbursement they are due. 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.”
