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Mortgage prisoner victory: Bank of Scotland refunds reader £30k

Sam Brodbeck
Philip Pantelouris won almost £30,000 in compensation from Bank of Scotland for a mortgage error - Stuart Nicol Photography

After a six-year battle, a “mortgage prisoner” has secured a £29,000 refund from Bank of Scotland for overpayments it admits he should not have been forced to pay.

Philip Pantelouris, 56, has been fighting the lender, which is part of Lloyds Banking Group, since 2011, when he was moved on to its 4.95pc “standard variable rate”.

Both variable and fixed mortgage rates fell sharply following the financial crisis, to around 4pc.

Since then lenders’ standard variable rates (SVRs) have risen while fixed rates have continued to fall. Today, the average two-year fixed deal costs 1.3pc, according to the Bank of England.

Mr Pantelouris, a property developer, borrowed £2m on a self-certification interest-only mortgage in 2008 to buy a mansion and small estate in Dumfriesshire, Scotland.

Self-certification loans, where borrowers declared their income but did not have to prove or “certify” it, were previously popular with self-employed workers and those with irregular earnings. Such loans are now banned.

Mr Pantelouris’s original mortgage rate in 2008 was 0.45 of a percentage point above the base rate. In 2011 he was paying 0.95pc, but after being moved on to the SVR this soared to 4.95pc. Initially this cost him over £8,000 a month, but fell to £4,000 a month after he sold part of the estate. 

Bank of Scotland refused to switch him to a cheaper deal because it said he could not afford the payments – even though they would be lower than the amount he was already paying. Mr Pantelouris was unable to prove a steady income as his earnings fluctuate between £1m a year and nothing.

When he tried again to remortgage in 2015, his request was rejected because he didn’t have an “acceptable repayment vehicle”, namely a plan to repay the capital of the interest-only loan when it expired.

But after Mr Pantelouris contacted Telegraph Money in February, Bank of Scotland finally agreed to move him to a more competitive 2.75pc rate, more than halving his payments to £1,796 a month.

Now, in another victory, Bank of Scotland has also agreed to refund him £29,000 as compensation for his overpayments. This covers the difference between the payments Mr Pantelouris made and the rate he should have been on, which the bank says was 3.6pc, since February 2015, plus 8pc interest.

The refund could have been greater, but the bank claimed to have no record of his request to move to a lower rate before that date.

Mr Pantelouris said: “I’m very grateful to the Telegraph in gaining a refund from this awful bank. Any refund is better than nothing and although the £29,000 is very helpful, with a property of this size, unfortunately it does not go very far.”

He estimates he has overpaid by a total of £130,000 since 2011.

“While it is great to get this money back, I can’t help suspecting that the bank could have offered me a better rate than 3.6pc, but this could be difficult to prove.

“I am disgusted with the underwriters who fobbed me off for years, refusing to talk to me or even my solicitor and only succumbed when a newspaper challenged them.”

What is a ‘mortgage prisoner’?

Mr Pantelouris is one of Britain’s estimated one million “mortgage prisoners”.

These homeowners end up on lenders’ expensive SVRs because of rules introduced in April 2014 in the “Mortgage Market Review”.

Philip Pantelouris was paying £4,000 a month for his mortgage at one point Credit: Stuart Nicol Photography

The review tightened the rules for banks and building societies, meaning they had to check that borrowers could afford mortgage repayments not just at the current rate, but also if they rose as high as 7pc.

The change was a response to the financial crisis and a bid to stop banks giving new mortgages to people who could not afford them.

But the rules have also been used for existing customers, leading to a perverse situation where people were told they could not move to a cheaper deal because they could not afford the lower repayments.

Mr Pantelouris is concerned that he will go through another battle when his new two-year deal comes to an end in 2019.

A spokesman for Bank of Scotland said: “We recently agreed a resolution with Mr Pantelouris that enabled him to transfer to a mortgage product most suitable for his current circumstances.

“Mr Pantelouris provided evidence of a previous request for a product transfer. We have retrospectively put in place the rate for which he would have first been eligible plus accompanying interest, which has now been paid to Mr Pantelouris.”

The spokesman said there was “nothing to suggest” he would not be eligible for a new fixed mortgage when his deal expires.

Others readers continue to fight banks for compensation after being put onto SVRs.

Another reader, Chris Campbell, was switched to Santander’s variable-rate mortgage in 2011 when his fixed rate expired. He complained to the Financial Ombudsman Service in 2013, only for his case to be rejected three years later.

An additional complaint lodged by Mr Campbell, and other Santander customers, over the bank’s decision to raise the SVR from 4.24pc to 4.74pc in September 2012 is has yet to resolved.

In another case, the ombudsman ruled that Bank of Scotland was wrong to apply affordability checks to a customer, who did not wish to be named, when he was refused a lower rate in May 2015.

The City watchdog’s April 2014 guidance on affordability included rules that allow borrowers with mortgages taken out before that date to switch without having to pass an affordability test, unless they were asking to increase the size of the mortgage.

As with Mr Pantelouris, Bank of Scotland was ordered to backdate the difference between the current rate and the rate the customer could have been on since May 2015, plus 8pc interest.

Bank of Scotland has appealed against the decision and the ombudsman declined to comment on the case until it is concluded.

Chirantan Barua, a bank analyst at Bernstein, an American broker, said the final decision would set a precedent that would have a significant impact on lenders’ profit margins.

“It will be very difficult for banks to block the refinancing of mortgages where people are paying standard variable rates of more than 4pc when the official Bank Rate is 0.25pc,” he said.

“If a precedent is set for compensation, it becomes a big risk for banks like Lloyds.”

Why did the rules change?

Since April 2014, lenders have had to apply more rigorous tests on borrowers’ ability to pay back loans.

But only people buying a property or remortgaging and borrowing greater amounts should be subject to tests.

However, lenders have been shown to be ignoring the rules and performing checks when they are not required - such as when a customer moves or “ports” a mortgage.

New tests on buy-to-let borrowers also took effect earlier this year. The regulator has imposed new thresholds that reject borrowers who make less than 25pc profit. It also fails landlords who would not be able to afford rates rising to 5.5pc.

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