Lloyds' mortgage error could cost £500m

Lloyds Banking Group has set aside £500m to voluntarily redress an estimated 300,000 Halifax customers potentially confused by its SVR cap.

The lender has admitted wording used to summarise the Halifax SVR cap for all mortgage offers written between 2004 and 2007 could have confused customers.

Lloyds will write directly to 600,000 Halifax customers in April in order to let them know of the redress programme. It estimates around 300,000 customers will receive goodwill payments as a result.

The £500m set aside for the programme will cover all costs to the lender, including contacting customers and goodwill payments.

Its contact and redress programme relates specifically to customers who were made mortgage offers by the Bank of Scotland under the Halifax brand between 20 September 2004 and 16 September 2007 and still held that mortgage in January 2009.

The Halifax SVR cap applied to mortgages that also had an early repayment charge applied. A summary of the terms was included in all mortgage offers until September 2007, when it was removed in line with regulatory guidance.

Its SVR cap was originally set at 2% above the Bank base rate but Lloyds said it was raised in October 2008 to 3% above base rate owing to "extenuating economic circumstances".

The change impacted customers once the SVR margin rose above 2% in January 2009 following the December 2008 base rate move.