Couple pushed to brink by bank

Published on Saturday 2 May 2009 13:31

BANKS have been attacked for persecuting hard-pressed families and small businesses by pushing up their charges, having already made an "astonishing mess" of their own affairs.

A report on the banking crisis by the influential Treasury Select Committee said: "We deplore the behaviour of a number of those banks who have received so much public money and behaved in such an insensitive manner, particularly to established customers… we regret the reports of sharp increases in bank charges and arrangement fees."

Harsh words they may be, but it is families and small businesses throughout Scotland who are being pushed to the brink of ruin by some of these practices.

One such couple are Robert and Lesley Foster, of Innerleithen. They have found themselves trapped by what they describe as a "desperate situation" after Royal Bank of Scotland, out of the blue, raised the cost of their loan by nearly 60%. As pensioners, there was no way they could meet this new bill.

Robert had taken early retirement, but not ready to retire, they decided to sell their Edinburgh home and buy a bed-and-breakfast business.

He said: "We saw a property in Innerleithen, and although it was over our budget it had at one time been run as a bed-and-breakfast business, which appealed to us greatly.

"It required some upgrading to bring it up to a suitable standard for a guest house. However, we were prepared to invest some of our retirement savings into the venture to generate an income.

"The mortgage on our existing property in Edinburgh had been paid off and we were reassured by statements from our agent about what our Edinburgh property would fetch and how quickly it would sell; statements that have come to haunt us."

They made an offer, which was accepted, with the seller agreeing to allow them three months to sell their home, which didn't seem too onerous at the time, and in the light of the agent's confidence.

But shortly afterwards the credit crunch struck with a vengeance, bringing the mortgage market to a halt. Although the Fosters had no difficulty attracting buyers, those interested in making offers were forced to pull out because they could not raise the money.

After three months the Fosters had no option but to enter a bridging arrangement to cover the 287,000 they were short. It was arranged via their solicitor with Royal Bank of Scotland at 3.5% over base rate, which at the time stood at 5% plus a 2,000 fee. They were told this could be renewed on these terms every three months until the property was sold.

They were stunned at having been caught out on the cusp of a global financial crisis. Monthly repayments of 2,032 looked set to financially cripple them, given that they only had their pensions to live on. But they found a short-term tenant for the Edinburgh property, and Robert took a part-time job at the local Co-op which brought in a little extra income. The bulk of the repayments, though, still had to be met from their retirement savings.

As the months passed, their panic subsided. Interest rates fell, making the payments more manageable if still painful. Although their Edinburgh house remains unsold, the couple have bookings coming in for the guesthouse for this summer.

However, their hopes were dashed when they recently received notification from RBS that their interest is to be increased from 3.5% to 5.5% over base rate, a hike of nearly 60%. Plus they must pay another hefty arrangement fee.

Robert said: "This is the final straw. The new monthly payment would increase to 1,450. My wife and I are pensioners with a combined income of 15,000 per annum. It's obvious we cannot sustain the fees and interest charges from that income and are having to see our life savings eroded by the severity of the payments.

"When RBS was on its knees begging for help, the bank was bailed out by the taxpayer. I strongly feel they should reciprocate. When a taxpayer through no fault of his own finds himself in a similar position, I believe RBS has a responsibility to treat us with some compassion and not merely strip us of our life savings. We have never failed to make any payments due this far, but the situation is getting desperate."

After the intervention of Scotland on Sunday, RBS has indicated that it is willing to review the Fosters' case, and says it is anxious to reach an arrangement which is acceptable to all parties.