Scarborough BS and Skipton Mortgage DD rip off

MarkyMarkD · 8 March 2009 at 4:49PM

ABC guide to how fixed rate mortgages work:

- you agree to borrow from Scarborough at 5.99% fixed for 5 years (say);
- they get the money from savers at a variable rate;
- they enter into an interest rate swap with a third party (normally a bank) under which they pay 4.99% fixed (say) and receive a variable rate for 5 years.

Overall, Scarborough have 4 cashflows:

- you pay them 5.99%
- they pay the swap counterparty 4.99%
- the swap counterparty pays them a variable rate
- they pay the savers a variable rate.

It makes no difference if the variable rate goes up or down - they still make 1.00% (or whatever) on the difference between the two fixed rate elements.

There is also a risk that the variable rates don't exactly match, but that is not the main problem in offering fixed rates - it's the movement between fixed and variable rates, hence the interest rate swap.

Robert_Sterling_3 · 9 March 2009 at 12:49PM

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Robert_Sterling_3 · 9 March 2009 at 10:52PM

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RabbitMad · 10 March 2009 at 9:18AM

I must say that I agree with MarkyMarkD and Rob Sterling that the financial impact is negligible but I think the comms could have been better.

If I could be arsed I'd model this on a spreadsheet and it wouldn't suprise me if the daily interest calcs that it sounds like people will be moving to would actually make them better off.

Robert_Sterling_3 · 10 March 2009 at 10:27AM

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trippy · 10 March 2009 at 2:47PM

So what's the final word then? Is the missed payment on 28 March going to accure interest for the term of the loan or just for 3 days until 1 April?

trippy · 10 March 2009 at 4:10PM

I have actually just phone Scarborough and spoke to someone who seemed to know what she was talking about. She confirmed the missed mortgage payment would be added to the mortgage balance and interest will be accrued on that for the lifetime of the loan.

RabbitMad · 10 March 2009 at 4:58PM

trippy wrote: »

I have actually just phone Scarborough and spoke to someone who seemed to know what she was talking about. She confirmed the missed mortgage payment would be added to the mortgage balance and interest will be accrued on that for the lifetime of the loan.

Example:

Payment due on 28th March total £800 of which £400 is interest from 1st march to 31st march and £400 capital.

Therefore if the payment isn't taken on 28th march but is taken instead on 1st april then in the payment on 1st May the interest will be higher as it needs to include the interest on the £400 capital payment from 28th march to 1st april, as such its only a few extra days interest.

This carries on for the life of the loan but as the SKIP calcs interest daily you actually benefit.

There really seems litle to worry about

fineanddandy · 10 March 2009 at 8:02PM

RabbitMad wrote: »

Example:

Payment due on 28th March total £800 of which £400 is interest from 1st march to 31st march and £400 capital.

Therefore if the payment isn't taken on 28th march but is taken instead on 1st april then in the payment on 1st May the interest will be higher as it needs to include the interest on the £400 capital payment from 28th march to 1st april, as such its only a few extra days interest.

This carries on for the life of the loan but as the SKIP calcs interest daily you actually benefit.

There really seems litle to worry about

I hate to labour the point, but it is being missed.

I dont have a major problem if the Scarboro did the above as Rabbit said (though from a principle point of view, it is still galling as i feel i should not be out of pocket by 1p)...however, as I and other Scarboro members HAVE REPEATEDLY POINTED OUT... they want a March payment AND a 01st April payment, and if they dont get both, then the missed MARCH payment and interest WILL be added to the loan for the whole term that it is for.

It is a case of HEADS Scarboro WINS, and TAILS Members LOSE!

silvercar · 10 March 2009 at 8:46PM

No-one has asked you for 13 payments in 2009. You can pay 11 payments or you can pay 12, if you make only 11 payments then the missing payment will be added to your mortgage and interest charged. If you can't afford to make a payment in March and another on 01 April, then make an overpayment sometime in the year. By the end of the year you will then have made 12 payments and your outstanding mortgage will be the correct amount (give or take a few pounds).