Lloyds takes £500m hit for mortgage confusion

21st Feb 2011 12:32

Lloyds Banking is to take a £500m charge in its results this week to cover potential compensation costs from badly worded mortgage agreements.The confusion arose after some customers wrongly assumed after reading their mortgage offer that Halifax would notify them if it raised the cap, or link to base rates, on their mortgage.Lloyds has set the money aside after reaching a voluntary agreement with financial regulator, the Financial Services Authority.The problems relate to mortgages issued by Halifax between the years 2004 to 2007, when it was owned by Bank of Scotland. The wording of the mortgage offer documents had the potential to cause confusion, Lloyds said.The Halifax raised the cap on its variable rate from bank rate plus 2% to bank rate plus 3% from January 2009 as interest rates tumbled because of the credit crunch. It will instigate a customer review and contact programme for customers and goodwill payments will be made to those affected. Some 600,000 Halifax customers are affected, but only half of these are expected to get compensation. The £500m provision will fully cover the expected cost, Lloyds added."A proactive co-ordinated programme to identify affected customers and make goodwill payments is the appropriate course of action," the bank said. Lloyds, which is 43% owned by the UK taxpayer, releases its full year and fourth quarter results for 2010 on Friday. Estimates from brokers, made before the latest provision, ranged from a loss of £1bn to a profit of £1.8bn.