Clydesdale and Yorkshire mortgage holders count cost of internal errors

Published 05th Aug 2010

A calculation error by Clydesdale bank means Alison Godfrey's mortgage is £7,600 in arrears and her repayments are about to rocket by 65% and must find almost £500 a month more to cover the shortfall


Thousands of households face huge increases in mortgage payments after Clydesdale and Yorkshire banks uncovered a calculation error which meant some customers had been undercharged for years. In some cases monthly payments will rise 65%, covering unpaid interest running to thousands of pounds.

Mother of two Alison Godfrey and her partner, who live near Stroud in Gloucestershire, will see their payments go up from £718 to £1,181 a month from September, even though the bank admits it is its error. The bank says they were undercharged £7,600 and that it will have to be repaid in full.

The problem began in 2005 when a mathematical error resulted in over or underpayments being made whenever the Bank of England base rate moved up or down sharply.

When rates plummeted between late 2008 and early 2009, customers at Clydesdale and at Yorkshire – also owned by National Australia Bank – were not asked to pay enough.

Around 10,000 people have underpaid on their mortgage at Clydesdale, and 8,000 at Yorkshire.

Godfrey and her partner took out a Clydesdale lifetime tracker mortgage for a three-bedroom semi-detached house in June 2007. The mortgage tracks the Bank of England base rate, plus 0.35% for the full 25-year term.

Their repayments fell along with the base rate, and had been £718 since April last year. Then, out of the blue, the family was contacted last month and told that a review had uncovered an inaccuracy in their repayments. It said these would now rise to £1,181 – an increase of £463 or 65%. It added that the family could make a one-off payment, or possibly extend the term of the mortgage.

In the letter, Nick Harrison, head of personal lending at Clydesdale, said: "Rest assured we have done our utmost to ensure this inaccuracy is corrected as quickly as possible."

But reassured was the last thing that they felt.

"We are a family of four, with a two-year-old and a four-month-old baby. We are both self-employed and I am on maternity leave, receiving just statutory maternity pay. I'm not sure where we will find the extra £463 per month – I may have to return to work earlier than planned," says Alison.

Since then, Clydesdale has been back in touch, offering to defer the increase until Alison finishes maternity leave next January, or to increase the term of the mortgage to reduce the monthly amount. Neither was suitable.

"Deferring the increase for four months would make very little difference to us, and, in fact, would end up costing us even more in accrued interest," she says. "I rejected their other offer on the grounds that, if anything, we would like to pay off our mortgage early, and this would also end up costing us more in interest."

Even if Clydesdale were to write off the £7,600, the Godfreys still face monthly repayments of £1,150 – a 60% increase on what they were paying just a month or two earlier. "I know we have a tracker mortgage and that repayments can fluctuate," she says, "but to suddenly have to find £432 extra a month because of Clydesdale's enormous mistake is difficult to take."

They and others in a similar situation could go to the Financial Ombudsman Service (FOS) if they cannot reach a mutually agreeable solution. This is the case even if someone has already agreed a repayment schedule but "didn't realise the wider situation", says Emma Parker at the FOS.

She said customers should first inform their bank if they are unhappy with its demands because the bank may offer another revised repayment schedule or structure. "Failing that, customers can refer their case to the FOS and we will try to prioritise cases where customers have financial difficulties. In the past, we have said, in certain cases, that lenders should take on the full burden of underpayments." Alison says: "Clydesdale said it is not in a position to refund any of the capital and that there are no further options. My husband is working hard to keep the business going while I'm on maternity leave, and this is now a very stressful situation."

Source: ' Guardian '

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