Northern Rock Together Mortgage in breach of "duty of care"?

Conqueror_2

I fell on this interesting article (http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/3885595/Watchdog-warns-banks-to-treat-customers-fairly.html) which stipulates that Northern Rock Together Mortgage might be in breach of the bank "duty of care".
Here is an excerpt of the relevant article:

"Mr Greene said: "You might see groups organise themselves to use the [duty of care] defence. When the bank puts the borrower into a position where they are already in negative equity, it may have breached that duty of care.

"Homeowners could argue that they don't owe the bank anything because of what it's done."

Banks will counter that the loans helped people on to the property ladder and allowed many to get rich during the housing boom. Northern Rock introduced its Together mortgage in 1999 – giving borrowers potentially eight years of upside before the crash." [end of quote].

Now, that's interesting. What would be the position of an individual having been given a Together Mortgage loan at a time when the market was at its peak (2007-2008)? In this context, the bank's arguement that the borrower was given an opportunity to cash-in a lofty equity would be debunked. I would like to know what others think about the referenced article and the argument of 100%+ mortgage loans being in breach of banks "duty of care". In essence, can I just tell the lender "you've set me up, I don't owe you anything, you "duty of care" violator!"

dwsjarcmcd

I suspect that if you just said 'you've set me up, I don't owe you anything' they may just disagree and if you didn't pay the mortgage they would repossess you!

If this was going to succeed, then it would need legal precedent, so that would require borrower(s) with deep pockets with a Together mortgage - not many of those - to take a case through the legal proccess.

Also, how could you reasonably expect to owe nothing? That would be a disadvantage to all borrowers who took less that 100% mortgages who would still have outstanding mortgages.

What about all those with secured loans which are totally seperate from their mortgages? Could they just walk away? Don't think so.

NR could also reasonably argue that for anyone who took the loan through a broker, the duty of care lay with the broker and not them.

Conqueror_2

Thank you for your response dwsjarcmcd. I do agree that it's a long shot but it might be ground for renegotiating certain aspects of the loan agreement (i.e, the unsecured loan portion of a together mortgage jumping to 8% above interest base rate if disassociated from the actual mortgage loan). As per this article, there seems to be a precedence being set with

"HBOS-owned Halifax having already had to give ground to customers after pressure from the FSA. Its tracker mortgages had a "collar" that allowed Halifax to stop reducing rates once the base rate fell below 3pc.
Although the condition was in the small print, the FSA declared it unenforceable because it was not included in the key facts illustration. Nationwide has also dispensed with its collar, following the Halifax ruling" [end of quote].
Evidently, I do not suppose a mortgage loan would ever be written off; but if found in breach of said "duty of care", Northern Rock might have to review how interest rate is unfairly set higher to incite existing customers to leave when they know the latter have no equity in order to be considered elsewhere. That my friend, I reckon is a breach of "duty of care"

dwsjarcmcd

Conqueror wrote: »

Evidently, I do not suppose a mortgage loan would ever be written off; but if found in breach of said "duty of care", Northern Rock might have to review how interest rate is unfairly set higher to incite existing customers to leave when they know the latter have no equity in order to be considered elsewhere. That my friend, I reckon is a breach of "duty of care"

Now on you last point, I totally agree with you. The problem with your comparison with collars on caps, is that Halifax cocked up basically by not putting the collar in the KFI. Other lenders who did put this term in the KFI have not removed similar collars.

sdooley

The together mortgage only went to 95%. The rest was a personal loan.

Conqueror_2

Thank you for your contribution sdooley. Indeed the Together Mortgage was not exactly 100% of the property value as it was split between the 95% mortgage loan, and the unsecure loan. However, the total package was sold as the mortgage ensemble. Thus, the Together Mortgage knowingly placed the borrower in negative equity violating the concept of "duty of care", especially when it was given as interest only. Though, I believe the borrower also agreed to the loan without duress, in all legality the burden of "duty of care" lies with the lender.

Conqueror_2

Good point dwsjarcmcd. Following your argument, I will need to verify whether or not it is stated in the KFI that the unsecure part of the Together Morgage loan would be hiked to 8% above base rate if disassociated from the mortgage loan itself. For once, I would be glad if I were to find it in the small prints instead, hehe...

feisty1

conqeror: yes it does state in the offer papers if you move yr mortgage and choose to leave the unsecured there, an increase will occur ie 8%. I personally have always made this a point i cover off with clients, but ultimately it is down to the clients themselves to read the t&c's.

feisty1

This is taken from a NR KFI:

An unsecured loan of xxxx is also available with this mortgage. The interest rates for the unsecured borrowing are same as that charged for the secured mortgage. The monthly payment for this unsecured loan is £xxx. The APR for the unsecured borrowing is 7.6%. On this basis, your total initial monthly payment on a total loan of £xxx will be £xxx. The overall APR is 7.3%. An unsecured loan of up to £30,000 is also available with this mortgage. The interest rate for the unsecured borrowing is the same as that charged for the secured mortgage. There are no Early Repayment Charges for unsecured borrowing. However, if the secured mortgage is transferred to another Northern Rock product or repaid in full, or transferred to another Northern Rock product, which does not have an unsecured facility, the rate of interest charged for the unsecured loan will immediately increase to 8% above Northern Rock's Standard Variable Rate at that time. This would make the interest rate payable 15.34% based on current Standard Variable Rate If the secured mortgage is transferred to another Northern Rock Together product, which has an unsecured facility the interest rate charge to the unsecured loan will be the same rate as the new secured loan product conditions. This additional feature is not regulated by the Financial Services Authority, but is regulated under the Consumer Credit Act 1974. You will receive separate documentation regarding this additional feature, describing the detailed terms on which this borrowing is available. The unsecured loan amount is subject to a maximum LTV of 30% or to a maximum amount of £30,000, which ever is the lower. Subject to status.

dunstonh

The article isnt very good though in its presentation. For example it cites the Halifax as having to give in on the collar issue. That had nothing to do with a duty of care but to do with the fact it was not disclosed in the KFI. You cant use that as an example of duty of care as it was an FSA ruling under what they would consider TCF. TCF has no legal standing but is an potential enforcement excuse that the FSA has.

The problem with any potential argument to get the debt written off is that for the bulk of the period that NR Together was available, people became financially better off. This is covered in the article. The lender has a duty of care to ensure that the lending is affordable based on the information provided to them. However, that doesnt make 125% of equity unaffordable. Its the monthly payment that matters. Interest only loans could be an interesting point to argue.

In most cases where debts are found to be unenforceable, they are not written off. they remain on the credit file. So anyone going down this route runs the risk of getting a short term benefit by not having to pay monthly payments but the cost is the damage to their credit file that will prevent them getting another mortgage or other credit in future (or at least until the unenforceable debt is cleared).

Conqueror_2

feisty1 wrote: »

conqeror: yes it does state in the offer papers if you move yr mortgage and choose to leave the unsecured there, an increase will occur ie 8%. I personally have always made this a point i cover off with clients, but ultimately it is down to the clients themselves to read the t&c's.

Thank you for your contribution feisty1. This is probably the main stumbling block for many others who wouldn't mind selling and taking part of the unsecured loan with them as a minimal loss if the interest rate would not increase by 8%. I wonder if it couldn't be argued that this clause, combined with the fact that the mortgage itself is interest only and puts you immediately in negative equity, constitute a breach of duty of care. In my particular circumstance, I am fortunate enough that the payment is affordable as I refused to borrow above my means even though I was offered much more. However, because the loan was given to me in November 2007 -that is after the Northern Rock debacle was publicly announced, I was wondering whether or not I could use the "duty of care" factor to renegotiate the terms of agreement under the pretense that the loan was given at a time when the company knew it was going bankrupt and did not make an effort to warn of the risk of still doing business with them given their current situation.