Thousands of buy-to-let landlords will share a multimillion-pound payout after winning a “David and Goliath” legal battle against one of Britain’s biggest building societies.
Court of appeal judges have ruled that the West Bromwich was not legally entitled to vary the landlords’ mortgage interest rates in the absence of a change in the Bank of England base rate, which their home loans track until the end of the term.
West Bromwich building society has been left with a £27.5m bill after being defeated in the court of appeal – but it said this “will not put the society in financial difficulty,” adding: “Our financial position remains very strong.”
The case involves a controversial 2013 decision by the West Brom to hike the monthly costs of more than 6,000 customers with buy-to-let mortgages that tracked the Bank of England base rate.
The action group that fought and won the case said the ruling “sends a clear message” to other mortgage lenders that might have considered following suit. It added there were around 1m buy-to-let tracker mortgages that could have been affected if the decision “had gone the wrong way”.
Borrowers reacted with fury when the the West Bromwich Mortgage Company, a division of the building society , said it would be increasing their interest rates by two percentage points. This was despite the fact that the base rate had been at 0.5% since 2009.
Some of those affected – for example, those paying a rate of 1.49% – saw their mortgage rate more than double at a stroke.
Scores of borrowers formed the Property118 Action Group, initially raising more than £400,000 to fight the decision. They took their case to the high court, where they were defeated, but they have now won their case at the court of appeal.
The West Brom said that while it was “disappointed”, it accepted the court’s decision and so would be contacting all 6,415 affected borrowers, most of whom were not part of the court action, to advise them of the outcome. The society said the borrowers would receive a refund of any additional interest charged.
It is not clear how or when this money will be distributed, but some borrowers look set to receive thousands of pounds. The total cost to the business is £27.5m, which, if it was all distributed to the borrowers would mean an average payout of £4,286 each.
The West Brom said: “Although this will result in the society recording a loss for the year to March 2017, underlying profitability is expected to be maintained, and the capital position of the society remains strong, and is significantly in excess of regulatory requirements.”
It is understood the affected customers took out their deals between 2006 and 2008, and are on a variety of different interest rates. All, according to the society, were described as “landlords of multiple property portfolios”.
The society had argued that the small print of the mortgages contained a clause that, under certain circumstances, enabled the lender to change the interest rate “to something more in line with the current market norm”. It suggested it had acted in part because of the plight of savers, who make up the vast majority of its 446,000 members and had suffered dramatic falls in income due to plummeting interest rates.
Mark Alexander, from the action group, said it had been a “David and Goliath legal battle”, and that justice had prevailed. He added that buy-to-let landlords often lacked the experience and finances to defend their legal rights, and Property118 Action Group Limited “will offer them a unique and powerful umbrella at a very reasonable price”.
Jonathan Westhoff, the society’s 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.”