Nationwide "Collar" Clause

grazer

Well put HangTime.

MarkyMarkD

I agree with HangingTime too, at least to some extent - well done for bridging the gap between us!

Another point is that those who live off their savings INCOME are often paranoid about eating into their capital. Quite rightly, to be honest - because once capital has gone, it's gone. Obviously those with £50k in savings who were earning 7% variable on it a year ago - say £3,500 or £70 a week which is quite a nice boost to your pension - could maintain that income by eating away £2,000 of capital a year as well as their new income of maybe 3% variable. But then next year, their income will have fallen by 4% on top of the impact of the rate change. And another 4% or more the year after, etc.

For people who are very elderly this erosion of capital isn't that important - as long as the capital lasts as long as they do. But they don't see it that way.

What they SHOULD have done is to have bought annuities with the capital, when the rates on annuities were better than they are now. Then they would be guaranteed an income for life - which is what they say they want - and the capital would be irrelevant.

The problem is that people generally want to have their cake and eat it - keep their income from savings, but keep their capital to leave to their offspring. Worthy ambitions, but not easy to guarantee.

grazer

I've been thinking about this - nearly everyone I come across is overpaying on their mortgages during this time of low interest. So surely the banks are not suffering a lack of revenue from mortgage customers, in fact the increase in overpayments could cancel out the drop in income from interest charges?

Also, the main Moneysavingexpert site now has a feature about how much in real-terms those who rely on savings interest are actually better off (taking into account inflation reduction etc etc)

So I am not conviced by the whining about savers suffering - read what the experts say and its not so clear cut as you make out MarkyMark.

---lee---

I consider myself to be reasonably financially savvy. I have a tracker mortgage because I felt I could afford to gamble on interest rates reducing in the medium to long term – which has now happened.

Since my first mortgage which must be about 10 years ago or so, I was aware of the various types, capped, fixed, variable, tracker etc. I did not know that a tracker could have a collar until it made the news a couple of months ago. I think it’s perfectly reasonable NOT to expect a tracker mortgage to have a collar as it’s then no longer a straightforward tracker and should be called something else. To me a tracker does what it says on the tin – track the BOE (or another rate) at a set percentage. The whole point of trackers was to escape from the lenders SVR deals where they sat on interest rate decreases for months and passed on increases in full without delay.

It is this sort of nonsense which alienates people – makes the products increasingly complex to understand and compare. We need good simple products that are transparent. It pushes people toward using advisors which in turn leads to the ‘well the advisor said this was the best mortgage for me, so it’s not my responsibility’, ‘I was mis-sold’ and ‘how can I sue/reclaim them’ type culture.

After saying all that, my tracker does not have a collar. I would like to think that if it had, I would have noticed but if it were tucked away in the small print, maybe I would have missed it and I could have sued myself for mis-selling myself a mortgage.

---lee---

…and another thing, I got notification from ING Direct today that my rate is reducing to 1.89% from 1st Feb. At the bottom of the letter it goes on to tell me what a good idea it would be to start overpaying my mortgage and even gives an example.

I don’t remember the banks ever begging me to overpay when the rates were in their favour – strange that – and don’t feel the need for their advice now. I’ve overpaid for years in any case, but I’m starting to think it’s probably a bad idea if the bank recommends it!

MarkyMarkD

But valid collar wording isn't "tucked away in the small print". It has to be in the KFI paragraph which describes the rate to be paid, i.e. "a variable rate, 1% above Bank of England Base Rate, with a current rate payable of 5.75%, with a minimum rate payable of 3.75%".

That isn't small print, and it's not obscure or confusing.

---lee---

I think it’s obscure. A Tracker should track without limits. It should be possible to compare like for like, so a tracker with a collar could be called Tracker with Collar.

As I said, I don't have a collar. If I had selected a product that did have a collar and it was in the FKI (as you say it would be) then I would certainly have noticed it but KFIs have only come about in recent years. Small print has been around a lot longer…

2latenow

---lee--- wrote: »

I think it’s obscure. A Tracker should track without limits. It should be possible to compare like for like, so a tracker with a collar could be called Tracker with Collar.

As I said, I don't have a collar. If I had selected a product that did have a collar and it was in the FKI (as you say it would be) then I would certainly have noticed it but KFIs have only come about in recent years. Small print has been around a lot longer…

... and it's always been the responsibility of the person signing to agreements to read that small print and accept it (or not and don't sign). If someone doesn't understand what's written in the small print they should ask for an explanation till they do. Unfortunately too many people can't be bothered to take the time to understand it and then refuse to take responsibilities for their actions when they later realise they are at a disadvantage because of it.

It seems pretty ludicrous to imagine the concept of not having a collar where a very very low tracked rate leads to a tiny or negative interest rate being charged. I mean, at very least the lender will incur some costs which have to be paid somehow so not having collars in all trackers looks like an amazingly stupid oversight by all lenders (probably not one they will repeat)

I can't believe how people on BoE - x rates who have seen their mgage interest charges fall beyond all previously possible explainations will still expect their rates should fall to 0% and whinge at the mere possibility that it might not. Where collars were mentions in either the KFI or small print they should just be really happy they were not being enforced originally. But these people will also be the ones complaining about lack of a "cap" should rates rise sharply in the way some people say they might.