Midcity Estates provides student accommodation in Sheffield. All was well with the business until they made the mistake of entering into a loan facility with Natwest in 2006 which came with a condition of lending that they take out a base rate swap.
Midcity transferred its lending portfolio to Lloyds a year later. At this time, Midcity was required to enter into a new, restructured swap. This saw Midcity become locked into a new IRHP with a term of 15 years. The new Lloyds IRHP had more fixed rate risk than its previous Natwest IRHP. It also came with an increased margin on its lending, together with a large administration fee of £150,000. What’s more, a break cost of £670,000 was created from the breaking of the original Natwest swap. This sum was added to the new IRHP.
Due to the crippling nature of the new Swap, it was cancelled on 11 July 2011 and Midcity took out a Fixed Rate loan. Break costs of £981,500 were created by this new arrangement.
We have pursued Midcity’s claim against both Natwest and Lloyds through the FCA Review. The process has been far from straight forward.
On 24th October 2014, we were informed by telephone by Natwest that a redress offer was to be sent out for the sum of £912,124.79. After almost two months, we finally received a letter from Natwest. To our surprise, the letter stated that despite the earlier telephone call, they had decided that no redress was payable. There was no explanation as to why they had changed their minds, apart from the bank’s mention of introducing a ‘swap for a swap’ (i.e. substituting an alternative product), which meant Midcity would receive no compensation.
Despite numerous complaints to the Chairman and CEO of the bank, the FCA and MPs, no further clarification on the point has been received other than to direct queries to Lloyds bank, who took over the lending in 2009. Natwest have stood by their offer of no redress.
Midcity fared slightly better with Lloyds. Their decision was that hedging was a condition of lending for only 50% of the loan and the fixed rate ought to have been 3.56% as opposed to 5.05%. As a consequence, Midcity has been offered £1.2m compensation from Lloyds. Whilst Lloyds is seeking to partially refund Midcity in respect of break costs, the amount of £981,500 remains embedded into the Fixed Rate Loan. The offer therefore looks artificially better than it is.
Midcity are still subject to horrific break costs on the Fixed Rate Loan that was entered into as a direct result of the now admittedly mis-sold Swap of 2009, which we calculate to be in the region of £1.1million. Lloyds have resolutely refused to deal with the Fixed Rate Loan as part of the Review on the basis that fixed rate loans are outside the strict scope of the FCA Review.
We are now at the stage of consequential losses in the Review. The banks continue to pressurise the business – refusing to suspend payments pending the outcome of the Review, and in the case of Natwest, refusing any extension of time for Midcity to file its claim for consequential losses – despite its own huge delay in dealing with the claim.
The battle goes on. The business owners who are two pensioners have had to push out any plans for retirement and are determined to continue to press the banks for compensation which reflects the true cost to the business.