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The BBC's Rory Cellan Jones: "The Government's taken these complaints very seriously"
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Thursday, 14 October, 1999, 17:37 GMT
Mortgage giants shamed

advisor Some people do not know the charges on their loan

Some of the UK's biggest banks and building societies have been named and shamed over 'unfair' home loans practices.

The Property Maze
The Halifax, the Abbey National and Northern Rock head the list of lenders who have sparked the most complaints from home-buyers.

They are followed by the Woolwich, Nationwide, NatWest, Alliance & Leicester, Bristol & West, Bradford & Bingley and Barclays.

The lenders have been blamed by watchdog, the Consumers' Association, for imposing terms or charges which are unfair.

The association also listed the top 20 scams pulled by lenders.

The one which sparked most complaints - 58% - was redemption penalties. Borrowers are deterred from paying off the loan early by hefty charges.

And under "extended lock-ins" the borrower is locked into a mortgage with a variable rate for a set period after a fixed-rate has ended, on pain of paying a penalty of thousands of pounds.

Another practice condemned was "bundling" - where buyers seem to get a preferential interest rate for buying buildings insurance from the lender. This often works out more expensive than other insurances and the lender gets hefty commission.

Paying more interest

Annual interest calculations also came under fire. Most existing mortgages have these instead of daily interest calculations.

mortgage The array of mortgages on offer can be confusing
It means that repayments, in January and February for example, do not work to reduce the total amount you owe until the following year - so the debt through the year is higher and incurs more interest. The average borrower pays 73 a year more than necessary this way.

The report comes a day after the government launched a plan for formal standards to make mortgages simpler.

Sheila McKechnie, director of the association, said: "We urge the government to act on our recommendations and regulate this industry to ensure consumers get fair mortgages."

The government is currently reviewing the mortgage industry and considering statutory regulation.

Mortgage firms hit back

Lenders denied their practices were unfair or charges were unclear.

The Halifax said it wanted to meet CA representatives for discussions.

It said it had no extended penalties for new mortgages and was the only major lender to offer a fixed rate with no redemption fees.

Fees for existing borrowers were clearly set out, the Halifax said.

Abbey National spokesman Tim Harrison said the list of lenders named reflected only each company's market share.

He said his company was not guilty of two of the charges condemned in the report.

And he attacked the timing of it, while consultations are continuing between lenders and ministers.

"This week we've had two separate announcements from government departments, driven by the behind-the-scenes consultations.

"We feel progress is being made and this report muddies the waters.

"They're talking about 1,000 complaints out of nearly 11 million mortgages in the UK.

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See also:
29 Sep 99 |  Your Money
Mortgage lenders face summit quiz
29 Sep 99 |  Your Money
Q&A: Crackdown on home lenders
14 Oct 99 |  Your Money
New standards for mortgage lenders

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