MSE News: Mortgage blow as building society hikes SVR

VIGILANT22

I actually do empathise with you…However, don’t you think Skipton will have consulted the FSA and all the big wig eagle beagles (not a property lawyer) in the land before exercising their right to invoke this exceptional circumstances clause…..If it comes down to protecting the society by doing this or “going to the wall”…..realistically if challenged which decision would be supported..

Pincher

CR10 wrote: »

What would actually happen though if they did try to call in the loan and the customer couldn't pay?

Well, normally they repossess, and you go homeless.

In this case, there is a whole army of mortgage holders who can form an Action Group to hire some lawyers.

An interesting outcome is the Skipton goes bankrupt, like Lehman Brothers, another financial institution that couldn't pay for its guarantees.

The Administrators will sell off the mortgage book at a discount, which always annoys me. They never say to the mortgage holder: "Pay us 50% of what you owe, and let's call it quits."; but they are perfectly willing to sell the mortgage book to some private equity company at 50% discount.

The money the Administrators get for selling the business fill their own coffers first, then the Inland Revenue takes a cut. If there's anything left, the creditors like savers get some.

Finally, Alistair Darling has to make up the shortfall for savers, up to his guarantee. It kept changing around the Icelandic default time, is it £50,000? I think it was 100% at some stage, but it must have been temporary.

So, if Sarah Bennett wins, the tax payer can end up footing the bill.

sarahbennett

Vigilant22 yes I agree Skipton will have consulted lawyers before invoking the exceptional circumstances clause, my lawyer thinks so too. Firstly, my lawyer pointed out the FSA do not give rulings in advance, it's not how they work, they only work retrospectively.

I was told:- "The customer would first have to make a complaint to the Skipton, and ensure they log it as a complaint. The Society will have 8 weeks to respond. If the customer is not satisfied, they can put in a complaint to the ombudsman (FOS). FOS considers these on a case by case basis. If they uphold a complaint the Society would have to issue a refund for any payments made above 3% over base rate to that customer (it does not automatically apply more widely) and require the Society to honor its terms." (The FOS confirmed this when I spoke with them).

Interestingly the lawyer agrees big wig eagle beagles will most likely have been consulted by the Skipton and that they will probably have told them: (1) the guarantee is water tight, and (2) you can expect you will need to pay some claims.

He thinks they'll also have done an exercise on risk along the following lines:- "if P customers make the effort to complain and these are resolved on a case by case, it will cost the Society X. If Y% move to more profitable products and Z% move away, the savings made will be Q." He thinks it's most likely lawyers and risk management consultants will have batted around these figures a while and concluded on balance the Society will be financially better off reneging on the guarantee. This very fact will cover the Directors on one aspect of their general legal liabilities on the basis they are "acting in the interests of all their members".

He told me they will most likely have been advised on the types of grounds customers will have to complain, that include:- (1) being treated unfairly, (2) inappropriately invoking the exceptional circumstances clause. And that they might be able to mitigate these risks by (a) ensuring responsiveness in communications, and giving clear information; and (b) clarifying what they mean by exceptional circumstances and being authoritative. Sufficient repetition might make it seem like the truth...

He thinks they'll have been advised something along the following lines:

(1) Try not to log any complaints, if a customer calls encourage them to discuss other products and options. Repeat the exceptional circumstances meaning. Tell them "It is not a decision the Society has taken lightly" and that "we are acting in the interests of all members". Tell them "I have a mortgage on the SVR rate and this affects me too", tell them anything that will give them sympathy with you, make them feel they are getting a good deal and avoid them making you log the complaint.

(2) In all press, literature and documentation highlight that the exceptional circumstances clause was very visible, and will have carried weight, divide and conquer customers by playing savers interests against borrowers interests and reiterating that you are "acting in the interests of all members in the long term", a legal obligation.

(3) Get unprofitable customers to either leave or sign up to other Skipton mortgage agreements ASAP by both helpfully negotiating with them on a case by case basis and offering them a limited time frame in which to act.

(4) Send an authoritative written communication (a leaflet is great for this type of thing) in which you say: "We have made every effort to explain clearly what is happening and why" (we are treating you fairly) "and the options we are providing you (some of which we were not obliged to provide)" (This is intended to make them appear reasonable. Incidentally it doesn't include the 3% ceiling guarantee that they are obliged to give, but might include some less expensive concessions like moving onto other Skipton products without an arrangement fee). "Whilst we acknowledge that any increase in your mortgage payment will be unwelcome" (empathise with the customer), "we believe our actions, in the long term best interests of all our members, should not have left you with grounds for complaint." (tell them authoritatively that you do not think they have a leg to stand on).

He thinks their lawyers will have advised nonetheless that the FOS would most likely uphold any customer's complaints, that there is a risk of an FSA fine, and they will have to settle some cases. They will recommend the society try to stop it going as far as the FOS or FSA and avoid at all costs a group ruling. A good way to do that he says might be to remind its customers that "FOS will only consider your complaint if you have already given us the opportunity to resolve it" and make no mention of court.

My lawyer told me quite frankly that he'd have advised them to do all of the above if he were acting for them. (Glad he isn't)

I consulted the property lawyer before I even got the leaflet or made my complaint to the Skipton, because I was away from home and heard about it on the news. Anyway, word for word that's exactly what they've done, and the fact they have great lawyers giving them this advice and will have considered what the FSA might do doesn't mean they're not pulling a fast one.

Pincher

Ralph Nader would be proud of that post.

That post should be framed.

Thrugelmir

sarahbennett wrote: »

Vigilant22 yes I agree Skipton will have consulted lawyers before invoking the exceptional circumstances clause, my lawyer thinks so too. Firstly, my lawyer pointed out the FSA do not give rulings in advance, it's not how they work, they only work retrospectively.

I was told:- "The customer would first have to make a complaint to the Skipton, and ensure they log it as a complaint. The Society will have 8 weeks to respond. If the customer is not satisfied, they can put in a complaint to the ombudsman (FOS). FOS considers these on a case by case basis. If they uphold a complaint the Society would have to issue a refund for any payments made above 3% over base rate to that customer (it does not automatically apply more widely) and require the Society to honor its terms." (The FOS confirmed this when I spoke with them).

Interestingly the lawyer agrees big wig eagle beagles will most likely have been consulted by the Skipton and that they will probably have told them: (1) the guarantee is water tight, and (2) you can expect you will need to pay some claims.

He thinks they'll also have done an exercise on risk along the following lines:- "if P customers make the effort to complain and these are resolved on a case by case, it will cost the Society X. If Y% move to more profitable products and Z% move away, the savings made will be Q." He thinks it's most likely lawyers and risk management consultants will have batted around these figures a while and concluded on balance the Society will be financially better off reneging on the guarantee. This very fact will cover the Directors on one aspect of their general legal liabilities on the basis they are "acting in the interests of all their members".

He told me they will most likely have been advised on the types of grounds customers will have to complain, that include:- (1) being treated unfairly, (2) inappropriately invoking the exceptional circumstances clause. And that they might be able to mitigate these risks by (a) ensuring responsiveness in communications, and giving clear information; and (b) clarifying what they mean by exceptional circumstances and being authoritative. Sufficient repetition might make it seem like the truth...

He thinks they'll have been advised something along the following lines:

(1) Try not to log any complaints, if a customer calls encourage them to discuss other products and options. Repeat the exceptional circumstances meaning. Tell them "It is not a decision the Society has taken lightly" and that "we are acting in the interests of all members". Tell them "I have a mortgage on the SVR rate and this affects me too", tell them anything that will give them sympathy with you, make them feel they are getting a good deal and avoid them making you log the complaint.

(2) In all press, literature and documentation highlight that the exceptional circumstances clause was very visible, and will have carried weight, divide and conquer customers by playing savers interests against borrowers interests and reiterating that you are "acting in the interests of all members in the long term", a legal obligation.

(3) Get unprofitable customers to either leave or sign up to other Skipton mortgage agreements ASAP by both helpfully negotiating with them on a case by case basis and offering them a limited time frame in which to act.

(4) Send an authoritative written communication (a leaflet is great for this type of thing) in which you say: "We have made every effort to explain clearly what is happening and why" (we are treating you fairly) "and the options we are providing you (some of which we were not obliged to provide)" (This is intended to make them appear reasonable. Incidentally it doesn't include the 3% ceiling guarantee that they are obliged to give, but might include some less expensive concessions like moving onto other Skipton products without an arrangement fee). "Whilst we acknowledge that any increase in your mortgage payment will be unwelcome" (empathise with the customer), "we believe our actions, in the long term best interests of all our members, should not have left you with grounds for complaint." (tell them authoritatively that you do not think they have a leg to stand on).

He thinks their lawyers will have advised nonetheless that the FOS would most likely uphold any customer's complaints, that there is a risk of an FSA fine, and they will have to settle some cases. They will recommend the society try to stop it going as far as the FOS or FSA and avoid at all costs a group ruling. A good way to do that he says might be to remind its customers that "FOS will only consider your complaint if you have already given us the opportunity to resolve it" and make no mention of court.

My lawyer told me quite frankly that he'd have advised them to do all of the above if he were acting for them. (Glad he isn't)

I consulted the property lawyer before I even got the leaflet or made my complaint to the Skipton, because I was away from home and heard about it on the news. Anyway, word for word that's exactly what they've done, and the fact they have great lawyers giving them this advice and will have considered what the FSA might do doesn't mean they're not pulling a fast one.

This is all very well. However if the Skipton BS needs to raise interest rates in order to fund your mortgage, ie attract savers. Forcing them to reverse their decision achieves little. This is the reality of the situation.
It has nothing to do with customers being unprofitable. The Skipton BS needs to contract its lending base.

The fact that you've gone at great expense to consult a "property lawyer", suggests that you own personal circumstances have a material a bearing on the situation. Far more than just the Skipton BS amending its terms.

In short it has more options than me. I could get an IVA (affects my credit rating) or file for bancruptsy (even worse) and in either case will almost certainly lose my home. It's simply "not cricket" to expect me to increase my liability. What they want is more money from me when I don't owe them any, because they happen to be short of cash.

sarahbennett

"This is all very well. However if the Skipton BS needs to raise interest rates in order to fund your mortgage, ie attract savers. Forcing them to reverse their decision achieves little. This is the reality of the situation."

As I mentioned in an earlier post if we, as a Society, can't honour our guarantees we have at least four options available to us (1) demutualisation, (2) floatation, (3) trade sale, (4) liquidation. Not honouring our guarantees, is in my mind, so bad for goodwill, and so potentially damaging in its establishment of a dangerous precedent that may impact on all our financial aggreements with any financial institution, for both savers and borrowers, as to be just not an option.

"The fact that you've gone at great expense to consult a "property lawyer", suggests that you own personal circumstances have a material a bearing on the situation. Far more than just the Skipton BS amending its terms."

As it happens, he hasn't charged me anything yet, and I had been banking, when I took out the mortgage of SVR rates to go from time to time to 12% or more...so I'm not sure what you mean?

Thrugelmir

sarahbennett wrote: »

"This is all very well. However if the Skipton BS needs to raise interest rates in order to fund your mortgage, ie attract savers. Forcing them to reverse their decision achieves little. This is the reality of the situation."

As I mentioned in an earlier post if we, as a Society, can't honour our guarantees we have at least four options available to us (1) demutualisation, (2) floatation, (3) trade sale, (4) liquidation. Not honouring our guarantees, is in my mind, so bad for goodwill, and so potentially damaging in its establishment of a dangerous precedent that may impact on all our financial aggreements with any financial institution, for both savers and borrowers, as to be just not an option.

"The fact that you've gone at great expense to consult a "property lawyer", suggests that you own personal circumstances have a material a bearing on the situation. Far more than just the Skipton BS amending its terms."

As it happens, he hasn't charged me anything yet, and I had been banking, when I took out the mortgage of SVR rates to go from time to time to 12% or more...so I'm not sure what you mean?

I have enormous empathy with you. I'm merely looking at the situation from a commercial angle on a far broader view than just the Skipton in isolation.

We are in exceptional financial times. Both RBS and HBOS were a weekend away from collapse. They are far from being fixed, being heavily dependent on Government funding for some years yet.

Unfortunately the mutual societies BS's have received no help. The Government hasn't helped by allowing both NR and the NSI to offer attractive rates to savers. Its merely made the situation worse.

My mortgage is with one. I'm lucky enough to have a lifetime base rate tracker. Yet wouldn't be surprised to see my interest rate increase. As the lending rate is unsustainable.

No one foresaw BOE base staying so low for so long. BOE base no longer reflects the true cost of commercial rates of both saving and lending. Its merely to support the entire Global banking system from collapse.

sarahbennett

... so are you suggesting I should be bailing my building society out by taking on additional liabilities?!

It's our choice to be a mutual, demutualisation itself among other things could raise the money needed for the society to honour its agreements.

Skipton are trying to claim "exceptional circumstances" can include a variation in interest rate (specifically they seek to claim that if the interest rate is 2.7% or below that itself will constitute an exceptional circumstance because it doesn't happen very often and it is severe), they've decided that another exceptional circumstance (something to do with the difference between borrowers and savers
rates that frankly I don't understand, chinese to me and if anyone can explain it to me I'd be much appreciative) could also be invoked, and they've added "or other exceptional circumstances"...

Barca v Mear (24/09/04); was one case that discussed the meaning of “exceptional circumstances,” citing the re Citro judgement. In that case the Court of appeal ruled that to satisfy the exceptional circumstances test, those circumstances had to be more than “the melancholy consequences of debt and improvidence” The fact the Society did not foresee BOE base rate staying low is a case of improvidence. I foresaw it, that's why I chose that agreement. It's simply not a point of fact that nobody foresaw it, and even for arguments sake if they did not, it still makes it improvidence and that does not satisfy the exceptional circumstances test.

In re Citro it was ruled that to be “exceptional” the circumstances had to be unusual in their very nature and that excluded many of the usual kind of circumstances, no matter how severe. In other words an exceptional type of circumstance is a circumstance that is qualitatively different from a usual type of circumstance rather than merely quantitatively different. In this case for example, the usual type of circumstance is that "interest rates may go up or down", the extent that they may go up or down refers to their severity, it is a quantification issue and does not impact on the type of circumstance in question...

sarahbennett

Another test for exceptional circumstances I've seen cited elsewhere runs as follows: "Are the circumstances of the Skipton exceptional in so far as they are different as compared to other banks or building societies?" In this case using your example it might be argued that building societies are exceptional because they are not bailed out like banks (bear in mind though that only last year the Skipton opted to bail out another building society to the detriment of its own capital position, a case of arguably extreme improvidence itself). However, using the same line of reasoning you would have to ask whether it were exceptional as compared to other building societies? In this case, the circumstances Skipton quote would not pass these exceptional circumstances tests since BOE base rates are the same for the other societies, they are not exclusive to the Skipton, and those with guarantees, such as Nationwide are honouring these for all existing borrowers, while at the same time making new rates for borrowing more expensive under new agreements.

Thinking again more widely than myself, if financial institutions are to be allowed to get away with reneging on their promises that would destroy any grain of remaining confidence in the financial sector in the UK with severe consequences for borrowers and savers alike.

dasilva_2

I will go back to one of my previous posts on this thread where I was accused of 'trolling'
On the Skipton website it states that one of the tests for 'exceptional' circumstances (as RECENTLY defined by the societies board) is that the BOE rate is less than 2.7% and it then reiterates 'exceptional circumstance STILL prevails'
It has prevailed for over a year now so why not instigate the clause in nov 2008 when the rate fell below the 'test' level.
It seems to me that would indicate that the boards definition of 'exceptional' has changed since then. I seems to me that people taking hundred of thousands of pounds a year off mutual members would be expected to have the intelligence to put in to an agreement a simple clause at the outset of that agreement, ie if the BOE rate fall below 2.7% we will not honour the 3% guarantee.
This is a quote from their website 'Historically, Skipton has maintained its SVR at a competitive level of 1% to 2% above Base Rate, so the SVR has remained comfortably below its ceiling. However, when the Bank of England reduced Base Rate to the current historic low of 0.5%, the ceiling prevented us from keeping our SVR in line with the market. As a result, our SVR has now remained far below market norms for building societies for almost a year.'
They just seem to be trying to get out of their contract with mortgage holders. What are 'market norms'?, that seems to indicate some sort of cartel as if they need to realign to other mortgage rates. The market price is made up by market forces
I wonder if there is a similar upper limit to their rate?