Northern Rock in penalty storm

Click to follow
The Independent Online
THE Northern Rock Building Society has been criticised for introducing retrospective penalties for customers who wish to redeem their mortgages. Up to 170,000 borrowers are affected.

From 1 July the society imposed a two-month penalty on existing customers wishing to pay off their standard variable-interest-rate mortgages within seven years of taking them out.

"We think it's unfair suddenly to impose this measure retrospectively, as it was not made properly clear from the beginning,'' said Sophie Gumpel, a senior researcher with the Con- sumers' Association.

The society says it is entitled to the extra money by a clause buried away in the small print of the mortgage rule book. For loans taken out before 1 July, the charges were hidden, apart from the details in the rule book. Nowhere in the sales literature or the formal letter of advance are they explained. The company conditions booklet also failed until recently to spell out redemption terms, merely referring borrowers back to the rule book.

Borrowers are angry at the company's move. One customer's lawyer told the Independent on Sunday that her client was considering legal action. "The first thing my client knew about the penalty was when she applied for a redemption statement."

The Northern Rock says additional charges are only applied to customers who have benefited from favourable fixed or discount deals. "We believe that it is fair to the vast majority of our loyal customers who remain with the society that they should not be subsidising borrowers who decide to leave the society as soon as the incentive ends," said Adam Applegarth, the general manager.

In fact, those affected by the new penalties will have already been locked into the Northern Rock's unfavourable standard variable rate for a number of years, before being hit with these new charges. At 8.54 per cent, Northern Rock's standard variable rate is one of the highest in the market. The Halifax charges 8.35 per cent.

The Northern Rock offers to refund the two-month standard penalty if the borrower moves home and takes another loan with them within three months.

Patrick Bunton, director of London and Country Mortgages, believes the move is just one more step in the industry-wide trend towards making existing borrowers subsidise loss-leading rates for new business.

"Companies are lending a lot, but their customer base is shrinking. So they put in little clauses to stop clients leaving, or to make profit if they do move,'' he said.

Around 170,000 of the company's 250,000 borrowers have loans that are less than seven years old.

Comments