Kensington Mortgages will issue new terms and conditions to 7,000 of its borrowers after a ruling by the Financial Conduct Authority (FCA).
The regulator said the terms contained in the Money Partners mortgage conditions booklet were ‘likely to be unfair' as they provided Kensington with too much discretion.
This was first published in 2004 and used for mortgages made under the Money Partners brand until 2007.
The terms included the right to demand full repayment of the mortgage if any term was breached or there was a change in the customer's circumstances.
Kensington was also able to raise a customer's monthly payments if they were insufficient to clear the debt by the end of the mortgage term.
The FCA also stated two further mortgage terms were not expressed in plain, intelligible language. These concerned what would happen if only one of the joint borrowers died and when Kensington was able to make changes to a customer's monthly mortgage payment.
The lender agreed it would not use these potentially unfair mortgage terms and existing customers whose mortgages are subject to these conditions will be treated as though the new wording applies to them.
This states the lender may only seek full repayment of the loan if a borrower fails to make payments and the amount unpaid is at least equal to two monthly payments, is in breach of particular obligations relating to the property and the customer has failed to remedy that breach within a reasonable period, has obtained the mortgage as a result of fraud or took a mortgage as joint borrowers, and both or all have died.
A statement from Kensington said: "We have agreed with the FCA to change a number of terms in the Money Partners Limited Mortgage Conditions Booklet 2004 England and Wales to make them fairer and clearer for customers.
"Mortgages completed by Money Partners were assigned to Kensington following their completion, but remained subject to the original Money Partners Mortgage Conditions.
"The terms that have been changed were never imposed by Kensington and the revised terms now reflect how Kensington actually operates in practice."
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