Clydesdale knew of £19m 'mortgage blunder' last autumn

Published on Thursday 22 July 2010 13:24

CLYDESDALE Bank has defended its handling of the £19 million mortgage underpayment crisis after it emerged it knew of the system error as early as last autumn.

It was revealed last week that 18,000 Clydesdale customers on variable rate mortgages, including 10,000 in Scotland, face repayment hikes after underpaying an average of 800 due to a miscalculation by the lender.

They have been sent letters over recent weeks informing them of the error and asking them to make the correct monthly payment plus an additional amount to cover the shortfall.

However, some borrowers have revealed they were contacted by the bank over a year ago regarding underpayment problems.

A Clydesdale spokesman said that while it had dealt with individual underpayments, it only became clear there was a system problem when it carried out a review last autumn. He said the time lapse between identifying the error and informing customers was due to identifying exactly who was affected and how.

"While it looks like we were slow to react, it is the other way around as we worked to make sure we could give customers what they needed to put it right."

The Financial Services Authority was made aware of the problem when it was identified and kept informed of the action being taken, he said. The error was made in 2005 but a series of interest rate cuts between October 2008 and March last year exacerbated it, with many borrowers seeing excessive falls in their monthly mortgage payments.

Some now face repayment increases in the hundreds of pounds, sparking calls for the lender to bear the cost of restoring those affected to the position they would have been in without the error. But Clydesdale said it would continue to deal with compensation on a case-by-case basis.

"We are applying the premise of putting people back in the position they would have been in had the error not occurred.

"We are trying to do that with the minimum of impact to customers and if that means they have been inconvenienced it might mean compensating them," said the spokesman.

But David Hollingworth, head of communications at mortgage broker London & Country, dismissed the lender's response as inadequate.

"When banks make mistakes they apologise and the customer pays. If you make an honest mistake an apology to the bank doesn't cut it. Clydesdale should have extended a goodwill gesture," said Hollingworth. "You need the flexibility to work on a case-by-case basis, but you have to take a consistent approach and implement compensation criteria with a consistent message."

Analysts in Australia, where Clydesdale's parent NAB is listed, have predicted a customer flight as a result of the crisis. But Hollingworth believes that while it would prompt some borrowers to change lender, there is unlikely to be an exodus.

"It may make some people review their deal and see if they can get a better one elsewhere. I don't think people will panic but they will feel let down so it's inevitable that some will take their custom elsewhere."