Many fixed rate loans were sold negligently by the banks, and a standard response from the banks has been that they “could have done more” to explain the existence of breakage costs on these fixed rate loans. Breakage costs can be as much as 60% of the fixed rate loan itself.
We received a recent adjudication from the Financial Ombudsman Service which found in favour of a country land owner in Yorkshire. The borrower had been left paying a fixed rate of over 7% and only payment of a £220,000 break cost would allow the loan to be placed on a lower, variable rate.
The Financial Ombudsman Service found that the fixed rate loan was not suitable, and that the bank was negligent in selling the loan to a borrower that “intended” to repay the loan prior to its 25-year term. The redress to the land owner has been repayment of over £150,000 in interest, and it means a monthly saving to the borrower from now onward of over £6,000 each month.