Statement regarding Court of Appeal judgement

A judgement has been handed down today in the Court of Appeal which has overturned the Order of the High Court in the case of Mark Robert Alexander (as representative of the ‘Property 118 Action Group’) and West Bromwich Mortgage Company Limited.

We are disappointed with the judgement handed down today by the Court of Appeal, which has overturned the Order of the High Court in the case of Mark Robert Alexander (as representative of the ‘Property 118 Action Group’) and West Bromwich Mortgage Company Limited, a wholly-owned subsidiary of West Bromwich Building Society (the Society).

This judgement relates to the decision taken in 2013 by the West Bromwich Mortgage Company to vary the interest rate margin charged for certain multi-property landlords in line with the terms and conditions of their buy-to-let mortgages. It affects landlords who took out their mortgage up to 2008.

The terms and conditions of these mortgages contain a clause which, under certain circumstances, enables the lender to change the mortgage interest rate to something more in line with the current market norm.

Savers, who represent the vast majority of the Society’s members, have suffered a dramatic fall in income due to lower interest rates. The Board of the Society therefore acted in accordance with its overarching duties to treat customers fairly and to act in the best interests of members as a whole, savers as well as borrowers.

After careful consideration and in response to the unprecedented reduction in interest rates over recent years and the increased relative cost in providing these loans, the Society could not, in order to protect the best interests of members, ignore this clause. The Court of Appeal has today ruled that the relevant clause is inapplicable in these cases.

While we are disappointed, we accept the Court of Appeal’s decision and so will be contacting all affected borrowers, including those who were not part of this action, to advise them of the outcome and that we will be reimbursing them any additional interest charged.

Other saving or borrowing members do not need to take any action as a result of this news.

The one-off cost of this will be approximately £27.5m.

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.

Jonathan Westhoff, 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.”

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