Nationwide and Halifax seek legal advice over "collars".

Leon_W

There was a small story in todays' Mortgage Strategy that caught my eye today as it's an issue that could really blow up in these lenders faces, that of the "collar".

Now, for those that think I'm talking of the wing or button down variety let me explain. All lenders have been selling tracker mortgages over recent years which supposedly track the Bank of England (BOE) base rate (BBR), up or down, at a given margin, say 1.5% above base, giving a current payrate of 3%(BBR) + 1.5% = 4.5%. Fairly simple and straightforward you would think as it says so on the Key Features document I was given when I was considering my mortgage options. Well, not so. The much lauded FSAs' "Key Features" (KFI) which was to bring an easy to interpret document with all the "important" bits is now mired in controversy.

Hidden in the small print of these mortgage deals was a, as yet untried, clause stating that if the BOE base rate fell below a certain percentage (2.75% and 3% for Nationwide and Halifax respectively) that they could invoke this clause and it would act as a floor (or collar) to the interest rate charged. So therefore, if rates continue to fall as widely predicted, Halifax tracker customers will not benefit, with Nationwides', perhaps, only benefiting from a 0.25% cut. Other lenders such as Abbey did not have this clause (more fool them ?) and theoretically could track down to their nominal rate of 0.0001%.

Now, you would think that this is pretty important information to consider and should have been highlighted in the KFI, it wasn't. In fairness, Nationwide did put this information in some KFIs but was it in all of them ? I'm not sure. Halifax are on a much stickier wicket as it was definately not included in theirs. Perhaps they thought it impossible for rates to sink that low and the clauses were unlikely to be used ? The interesting thing is who made the decision to exclude this information from the KFI and hide it in the small print, the lenders themselves or the FSA as they were blinded to the fact that they wanted to keep the KFI simple ?

So anyway, Mortgage Strategy are today reporting that Nationwide and Halifax have sought legal advice that the collars on their trackers is enforceable. Seems like they are a little worried about it doesn't it ? The Nationwide maybe on surer ground, but, depending on which view you take, the Halifax may have shot themselves in the foot.

I don't expect anyone to make a great deal of fuss at the moment, but there will be a huge outcry if the BOE cuts rates by a further 1% and even the trackers stop tracking ! The Halifax will obviously point to their terms and conditions where the clause was hidden away, but I would be more inclined to point the finger at the FSA who should have insisted that these details were on the KFI. Put it this way, Capped rate mortgages were fairly popular a few years ago whereby the rate was guaranteed not to exceed a certain percentage and all these details were clearly spelt out in the KFI for the customer to see. So why not if the rate were to fall below a certain percentage ? Oh no, lets hide that in the small print. Smacks of double standards to me.

The next few weeks could be very interesting indeed.

Regards

luckyfool

Halifax did include details of the collar in their KFI's . . . and then they removed it when the FSA complained that their KFI was too long and complicated so they removed the collar detail. So it's the FSA's fault!

Nationwides new trackers have a collar of 1% instead of the old 2.75% figure, of course for people on the old trackers they are probably still better off as they are likely to be on tracker margins of around 0.3-0.6% above base rather than 1.99%+ above base as with the new deals.

koexelek

luckyfool wrote: »

Halifax did include details of the collar in their KFI's . . . and then they removed it when the FSA complained that their KFI was too long and complicated so they removed the collar detail. So it's the FSA's fault!

Yes, I read that last week.

I'd like to see a ruling that if a lender did not have it in their KFI, they could not impose it.
I know we brokers would get slaughtered if anything in our suitability letters was not right :rolleyes:

midflight

So... we bail out the banks... to the tune of how many billion?... and in turn they show their eternal gratitude by refusing to track our mortgage deals below a certain % ??? That's nice. Will the government allow this to happen?

dave76

luckyfool wrote: »

Halifax did include details of the collar in their KFI's . . . and then they removed it when the FSA complained that their KFI was too long and complicated so they removed the collar detail. So it's the FSA's fault!

Nationwides new trackers have a collar of 1% instead of the old 2.75% figure, of course for people on the old trackers they are probably still better off as they are likely to be on tracker margins of around 0.3-0.6% above base rather than 1.99%+ above base as with the new deals.

I got my tracker with nationwide at base - 0.07 % but yeah that is collared at 2.68 so I will be a bit miffed if the base rate goes below 2.75. I was aware of it when I took out the deal 12 months ago, cant remember if it was in the KFI though?

Joe_Bloggs

I also was aware of a collar. I understand that building societies have to rely on approx 50% of their mortgage lending being financed by savings investors. I have asked the Nationwide to convey the the appropriate collar information to their, online mortage users on the screens that summarise their account.
J_B.
Correct me If I am wrong and tell me where to get the correct information !

bargainbarmy

Leon_W wrote: »

There was a small story in todays' Mortgage Strategy that caught my eye today as it's an issue that could really blow up in these lenders faces, that of the "collar".

Now, for those that think I'm talking of the wing or button down variety let me explain. All lenders have been selling tracker mortgages over recent years which supposedly track the Bank of England (BOE) base rate (BBR), up or down, at a given margin, say 1.5% above base, giving a current payrate of 3%(BBR) + 1.5% = 4.5%. Fairly simple and straightforward you would think as it says so on the Key Features document I was given when I was considering my mortgage options. Well, not so. The much lauded FSAs' "Key Features" (KFI) which was to bring an easy to interpret document with all the "important" bits is now mired in controversy.

Hidden in the small print of these mortgage deals was a, as yet untried, clause stating that if the BOE base rate fell below a certain percentage (2.75% and 3% for Nationwide and Halifax respectively) that they could invoke this clause and it would act as a floor (or collar) to the interest rate charged. So therefore, if rates continue to fall as widely predicted, Halifax tracker customers will not benefit, with Nationwides', perhaps, only benefiting from a 0.25% cut. Other lenders such as Abbey did not have this clause (more fool them ?) and theoretically could track down to their nominal rate of 0.0001%.

Now, you would think that this is pretty important information to consider and should have been highlighted in the KFI, it wasn't. In fairness, Nationwide did put this information in some KFIs but was it in all of them ? I'm not sure. Halifax are on a much stickier wicket as it was definately not included in theirs. Perhaps they thought it impossible for rates to sink that low and the clauses were unlikely to be used ? The interesting thing is who made the decision to exclude this information from the KFI and hide it in the small print, the lenders themselves or the FSA as they were blinded to the fact that they wanted to keep the KFI simple ?

So anyway, Mortgage Strategy are today reporting that Nationwide and Halifax have sought legal advice that the collars on their trackers is enforceable. Seems like they are a little worried about it doesn't it ? The Nationwide maybe on surer ground, but, depending on which view you take, the Halifax may have shot themselves in the foot.

I don't expect anyone to make a great deal of fuss at the moment, but there will be a huge outcry if the BOE cuts rates by a further 1% and even the trackers stop tracking ! The Halifax will obviously point to their terms and conditions where the clause was hidden away, but I would be more inclined to point the finger at the FSA who should have insisted that these details were on the KFI. Put it this way, Capped rate mortgages were fairly popular a few years ago whereby the rate was guaranteed not to exceed a certain percentage and all these details were clearly spelt out in the KFI for the customer to see. So why not if the rate were to fall below a certain percentage ? Oh no, lets hide that in the small print. Smacks of double standards to me.

The next few weeks could be very interesting indeed.

Regards

I am on Nationwide's BMR of 4.69%. However, I was with Portman and I automatically transferred over to Nationwide when they merged with Portman. Where do I stand regarding this? I don't know what was in my original Portman mortgage clauses but now that I am with Nationwide do I have to accept whatever is their policy? Not fair really if I originally took out my mortgage with Portman.

edgex

You dont sign your mortgage deal based just in the KFI, you sign it based on all of the t&c's. There will be something when you sign, which says something along the lines of
'you have read & agree to the terms & conditions as supplied'

Considering its probably the biggest financial decision anyone will ever make, if they havnt read the t&c's its their own fault.

opinions4u

To be honest, the collars look to me like a logical term and condition to cover exceptional circumstances.

1) They may not enforce the collar
2) We are in exceptional times
3) There is the potential for BofE rates to drop to zero (precedent Japan) and I don't think it's realistic for borrowers with a negative tracker (e.g. BofE -0.25%) to expect to borrow money AND be paid 0.25% for doing so.

The condition was there in the terms and conditions to cover situations where Libor and BofE lost track of each other completely.

If you don't like it, remortgage elsewhere.

If you hadn't noticed, bankrupt banks aren't to good for the nation as a whole.

luckyfool

dave76 wrote: »

I got my tracker with nationwide at base - 0.07 % but yeah that is collared at 2.68 so I will be a bit miffed if the base rate goes below 2.75. I was aware of it when I took out the deal 12 months ago, cant remember if it was in the KFI though?

Nationwide KFI's and mortgage offers were pretty solid on disclosing the collar. The fact that you were aware of it when you took it out suggest to me that it was at least disclosed to you!

payless

they were from their own site.. but were the 3rd party sourcing system KFIs as good - I know some did not detail initial interest wonder what else they missed