The Abbey bank has had to explain a letter it sent to its flexible mortgage customers warning of the impact of lower house prices on their contracts.
The Abbey bank has had to explain a letter it sent to its flexible mortgage customers warning of the impact of lower house prices on their contracts.
It warned the credit available would be limited to 90% of a home's value, reducing available balances for some.
It warned the credit available would be limited to 90% of a home's value, reducing available balances for some.
Customers who complained were later told of a contract clause which stated Abbey could ask those borrowing more than 90% to pay back a lump sum.
Customers who complained were later told of a contract clause which stated Abbey could ask those borrowing more than 90% to pay back a lump sum.
But Abbey says it has no plans to use the clause to force borrowers to do so.
But Abbey says it has no plans to use the clause to force borrowers to do so.
However, it did not guarantee that it would not do it in future.
However, it did not guarantee that it would not do it in future.
Flexible mortgages have become more popular because they allow homeowners to borrow money up to an agreed limit in stages and pay it back early if they wish to.
Flexible mortgages have become more popular because they allow homeowners to borrow money up to an agreed limit in stages and pay it back early if they wish to.
Abbey ought to withdraw this clause, promise people that it won't be invoked and give reassurance to people in what are currently worrying times Labour MP Nick Ainger
Abbey ought to withdraw this clause, promise people that it won't be invoked and give reassurance to people in what are currently worrying times Labour MP Nick Ainger
But Abbey wrote to some customers saying their credit limit would be limited to 90% of the value of their home.
But Abbey wrote to some customers saying their credit limit would be limited to 90% of the value of their home.
It said according to the terms of the flexible mortgage agreement, if the value of a customer's home fell so their mortgage balance exceeded 90%, the bank would withdraw any available balance over 90%.
It said according to the terms of the flexible mortgage agreement, if the value of a customer's home fell so their mortgage balance exceeded 90%, the bank would withdraw any available balance over 90%.
Customers who went on to complain about the limit then received a further letter that referred to a clause in the mortgage contract that reserved Abbey the right to ask people to pay back any balance used above 90% within three months.
Customers who went on to complain about the limit then received a further letter that referred to a clause in the mortgage contract that reserved Abbey the right to ask people to pay back any balance used above 90% within three months.
'Outrageous'
'Outrageous'
Jonathan Wilkinson, who received one of the letters from the bank, said it was terrifying.
Jonathan Wilkinson, who received one of the letters from the bank, said it was terrifying.
"It's a massive worry for both my wife and I. It's the first thing we think about in the morning and the last thing we think about at night.
"It's a massive worry for both my wife and I. It's the first thing we think about in the morning and the last thing we think about at night.
"And then for the bank to spring this upon customers when we've never missed a payment at all - we've made faultless mortgage payment history - it's just devastating."
"And then for the bank to spring this upon customers when we've never missed a payment at all - we've made faultless mortgage payment history - it's just devastating."
If they can pay off some capital to bring their loan-to-value ratio down, we would encourage them to do so Abbey spokeswoman
If they can pay off some capital to bring their loan-to-value ratio down, we would encourage them to do so Abbey spokeswoman
Labour MP Nick Ainger, a member of the Treasury Select Committee, described the letter as "outrageous".
Labour MP Nick Ainger, a member of the Treasury Select Committee, described the letter as "outrageous".
"Abbey ought to withdraw this clause, promise people that it won't be invoked and give reassurance to people in what are currently worrying times."
"Abbey ought to withdraw this clause, promise people that it won't be invoked and give reassurance to people in what are currently worrying times."
A spokeswoman for Abbey did reassure customers the bank had "not invoked this particular clause" and had "no current intention to".
A spokeswoman for Abbey did reassure customers the bank had "not invoked this particular clause" and had "no current intention to".
"What we would say though, is that in a falling house price environment, it is prudent for people on flexible deals who find themselves at over 90% LTV [loan-to-value ratio] to look at whether they can afford to make any overpayments," she said.
"What we would say though, is that in a falling house price environment, it is prudent for people on flexible deals who find themselves at over 90% LTV [loan-to-value ratio] to look at whether they can afford to make any overpayments," she said.
"If they can pay off some capital to bring their LTV down, we would encourage them to do so."
"If they can pay off some capital to bring their LTV down, we would encourage them to do so."
Melanie Bien, an advisor from Savills Private Finance, told BBC Breakfast she believed other banks may follow Abbey's lead in warning customers about excessive borrowing.
Melanie Bien, an advisor from Savills Private Finance, told BBC Breakfast she believed other banks may follow Abbey's lead in warning customers about excessive borrowing.
"Lenders basically have various clauses in their contracts to protect themselves and mostly they don't need to invoke them," she said.
"Lenders basically have various clauses in their contracts to protect themselves and mostly they don't need to invoke them," she said.
"But obviously in a falling market, when house prices are declining, people's value - equity in their homes - is also declining, so lenders are more likely to be calling borrowers to task on these sorts of items."
"But obviously in a falling market, when house prices are declining, people's value - equity in their homes - is also declining, so lenders are more likely to be calling borrowers to task on these sorts of items."
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