British lender West Bromwich Building Society has been forced to put aside £2m ($3.4m) in compensation after it overcharged nearly 8,000 borrowers on their mortgages.
The building society, based near Birmingham, has admitted that it charged 7,669 borrowers too much interest, charging up to the end of the month when they redeemed their loans rather than up to the date of redemption.
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CEO Jonathan Westhoff, apologised for the error, saying: "As a building society we always act in the interests of our customers and their needs and rights are of paramount importance to us.
"Overcharges have stemmed from a historical error originating some ten years ago, which we uncovered while investigating a recent service enquiry. We sincerely apologise to those people who have been charged incorrectly and are responding swiftly to restore them to their original position."
Most of the affected loans were taken out between 2004 and 2007.
The society will also have to pay interest on the compensation at a rate of 8% of the amount overcharged from between the date the loan was redeemed to 30 June.
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By GlobalDataA spokesperson said most affected customers could expect to receive between £100 and £500.
Affected customers will be notified by letter this week and should be repaid within two weeks, they added.
The news comes at a time when the Bank of England is considering measures to reign in the housing market by scaling back the government’s Help to Buy scheme.
In the central bank’s Financial Stability Report, governor Mark Carney recommended that a new affordability test be implemented, where mortgage lenders should assess if borrowers could still afford to repay their mortgage if interest rates were three percentage points higher than at the time of the loan.
He also recommended a mortgage cap, proposing that no more than 15% of a lender’s total number of residential mortgages should be at, or greater than, 4.5 times the borrowers’ income.
Chancellor George Osborne said he was behind Carney regarding the mortgage cap, adding: "I fully support this action by the Bank of England,s new Financial Policy Committee to use the new powers we have given them."
Mr Osborne said he would demonstrate this support by applying the new mortgage limits to every loan in the Help to Buy programme.
Despite the new measures, Carney said there would be no immediate impact on the housing market but rather a gradual and sustainable shift.
He said: "I do not want to see a change from today’s responsible lending shift into reckless lending.
"If yesterday you went into a bank or building society and were approved for a mortgage, you will still be approved for that mortgage today.
"But you can have more confidence in the durability of the expansion."
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