NatWest forced to reduce mortgage penalties

NATWEST, THE clearing bank, yesterday bowed to pressure from consumer groups and the Government and agreed to reduce its redemption penalties on fixed-rate mortgages following intervention by the Office of Fair Trading.

NATWEST, THE clearing bank, yesterday bowed to pressure from consumer groups and the Government and agreed to reduce its redemption penalties on fixed-rate mortgages following intervention by the Office of Fair Trading.

The move came as Britain's mortgage lenders prepared to meet Stephen Byers, the Secretary of State for Trade and Industry, and Melanie Johnson, the Economic Secretary to the Treasury, at a mortgage "summit" at the Department of Trade and Industry today.

NatWest, which has been severely criticised for the complexity of its penalties, agreed to cap redemption penalties at 5 per cent of the loan where mortgages had five more years to run. For mortgages redeemed earlier in the term NatWest has agreed to set a ceiling of 7 per cent on redemption charges.

The bank has also given written assurances to the OFT that it will not charge penalties in the event of a loan being terminated early because of death or repossession. The loans affected date back to 1996.

John Bridgeman, the director general of the OFT, said: "NatWest was offering unusually long term fixed-rate loans at a time when interest rates were higher than they are now. Borrowers were reasonably attracted to this. But the redemption charges were variable and borrowers did not realise that if their circumstances changed, and they wished to redeem the loan early, they could face ruinously high charges."

NatWest was recently singled out by the Consumers Association for criticism after a complaint from a borrower who faced a redemption penalty of £6,000 on a fixed-rate mortgage of £60,000. The customer claimed to have been told when taking out the mortgage in 1997 that £300 was the likely penalty.

Mr Bridgeman added that the OFT was studying the redemption penalty issue more closely and intends to publish the results of its research in the next few weeks.

Other topics at today's DTI meeting include compulsory tie-ins, endowment mortgages, and annual interest rates. Many in the industry fear that the summit heralds a more activist role by the DTI on the issue. NatWest defence, page 21