MSE News: Mortgage blow as building society hikes SVR

Thrugelmir

MarkyMarkD wrote: »

Lots of posts since my last one.

To go backwards (or answer them randomly):

- the BoE data is easy to find on their website. I can do so and I'm not that clever.
- sarahbennet's point about FSA prior approval or not is a red herring. Skipton will have told FSA that they wanted to do this. FSA would have stopped them doing it, if it believed that this was a breach of "Treating Customers Fairly". There is no way that the FSA, as regulator, would allow a financial institution to treat 60,000 or 100,000 customers in a way they deem unfair. The FSA don't approve things, they simply do not object if they are not unhappy. It's all double negatives but it has the same effect as them having given Skipton prior approval.
- sarahbennet's interpretation of what is exceptional is wrong. I doubt that there has ever been an occasion when the relationship between High Street savings rates - the source of most of Skipton's funds - and Bank of England base rate has been as it is now. If you tracked the data (on the BoE website) over time, I doubt average savings rates have even gone anywhere near as high as BBR in the past, let alone being almost at the same level as they are now.
- sarahbennet's arguments about Skipton's improvidence are rubbish. The only material bit of improvidence that Skipton have committed is to offer an SVR capped at BBR+3% - but they weren't improvident, because they included an "exceptional circumstances" clause. It can be argued - with a lot of validity - that both the "exceptional circumstances" clause, and the way that they have applied it (significantly after the first date it would have been reasonable to do so) reflect an intention, and an actual behaviour, of delaying the adverse impact on borrowers until the latest possible occasion - Treating Customers Fairly at its best. As others have posted, they have eaten into reserves until it has become impossible for them to do so.
- the Scarborough issue is a red herring too. The argument that acquiring Scarborough has eaten up Skipton's reserves makes no sense - Scarborough's assets were written down and they effectively acquired them for nothing. Quite the opposite - costs can be saved through rationalisation, and as provisions are written back (if the Scarborough assets are managed well) Skipton members will benefit.
- sarahbennet's claim that she knew base rate was going to fall to a very low level and that she'd therefore benefit is pie in the sky and nobody reviewing a complaint/claim is ever going to believe that. Do you have a crystal ball so you can predict things which all the banks and building societies did not believe would happen? Anyway, as I keep saying, the base rate fall is not the essential thing that has made things exceptional - Skipton would be fine (and would not have exercised the clause) if savings rates were where they should be with a 0.5% base rate, i.e. about 2%-3% lower than they are now.
- sarahbennet's arguments that by paying SVR in order to derive this benefit, she paid over the odds and deserves to repay less than her account balance to walk away, is also cobblers. You borrowed at SVR because it was the best rate available to you, I presume, rather than for some spurious future benefit. There were plenty of genuine lifetime trackers around at the time, cheaper than Skipton SVR, for anyone in normal borrowing circumstances.

The most interesting points are regarding those customers acquired since the exceptional circumstances have been triggered. This is where I accept that Skipton's argument is the weakest. They would certainly have been better doing what Nationwide did, and launching a new SVR-type product without the guarantee. They presumably did not do so, because they did not expect the adverse circumstances to continue, and therefore did not expect to have to exercise the exceptional circumstances clause. That was daft - they could, in fact, have simply stopped offering SVR products at all and simply offered lifetime trackers at a higher tracking rate.

Thanks for an excellent post.

mymoneyf

Before I get involved in arguments, may I just state that I am not a Skipton borrower, but my (rather unhappy) sister is. After lots of discussions, (I am a qualified IFA, on maternity leave, so forgive me if my points are subject to "baby brain") I thought I'd get involved on the forums.

MarkymarkD, you really seem to know what you are talking about The one thing I will say in reply to your post is that the Skipton DID stop lending on the SVR. I tried many months ago to get a mortgage with them on their SVR, as it was (!) so attractive. I was advised at the time that their SVR was only available for customers coming off a product with them, and no new lending would be done on the SVR. Likewise they stopped BTL lending and base rate tracker mortgages. So from these amendments to their lending criteria, one must assume that they WERE trying to absorb their losses, but ultimately, nobody could have forseen the situation our country is in now.

I would also go as far as to question the very questionning of the "exceptional circumstances". Bold I know! Hehe. The very nature of exceptional circumstances is that they are not day to day and not ordinary. Hence this is the Skipton's way of saying that anything could happen essentially. They cannot define the exceptional circumstances, as to define them would be to expect them, and to expect them would surely mean that it would be folly to lend!

Just a couple of points I thought I'd raise as food for thought.

sarahbennett

The expert legal opinion on the matter I got today was that for this contract the base rate itself could not reasonably be cited as "exceptional", even if it is in a colloquial sense.

You are right, Skipton were improvident to have included a 3% guarantee in SVR contracts (I'm interested to understand why you think they were?), they were also improvident in not insuring against the risk of a fall in interest rates. Further, Skipton's financial situation has no bearing on their ability to cite exceptional circumstances to alter their guarantees, as was ruled in Equitable Life, repeatedly.

Maybe the Scarborough acquisition will help in the long run, maybe it won't, but it did affect capital position in the near term (see the Skipton accounts over this period, as published on their website, they themselves cite the acquisition as a reason for a large decrease in their profits).

Of course I didn't "know" the base rate was going to fall but I did predict it based on a number of factors (1) It's not been long that the BOE has been setting rates therefore history prior to that is not a reliable predictor in my mind, (2) Japan, along with a number of other developed countries, have had below 2.7% base rates for years, (3) Base rates tend to go down as people are less willing to spend money, and I could foresee a period of realism following a period of excess, lack of being "grounded" in the financial services industry. Anyway, irrespective of my reasons (that are irrelevant to this discussion) for foreseeing lower base rates, I was told I was sold an agreement that would enable me to benefit for any fall in the bank's base rate (while such a fall was at the same time later cited as a reason for altering my terms)

I'm glad you agree the "base rate fall is not the essential thing that has made things exceptional" as this is what Skipton cite as the first of their exceptional circumstances. You cite the second of their exceptional circumstances as more valid I take it? (I'd appreciate your explanation as to how these circumstances are exceptional?). You say Skipton would be "fine" if market savings rates were where they should be, however that circumstance also applies to Nationwide, who have not exercised the exceptional circumstances clause to get out of their guarantees, and they are honouring those promises.

Mark, I borrowed at Skipton when it was by far not the best rate available to me, and I selected a product that tracked BBR rather than something else like Barclays Bank Base Rate, or base rate "in consideration of market conditions" deliberately. The reason I happily paid higher rates was because I thought that in the future I'd benefit from lower rates (my mortgage offer letter confirms this "you wanted a product that would enable you to benefit from any future falls in the bank's base rate") I may not be informed and clever like a banker, but I am entitled to take a punt like anyone else.

"There were plenty of genuine lifetime trackers around at the time, cheaper than Skipton SVR, for anyone in normal borrowing circumstances." I'm not sure what you mean by "normal borrowing circumstances", I looked at a number of different products (you say "at the time" when?), but I had various criteria, I thought I could trust a mutual (which in hindsight was a mistake), I liked the fact I could pay capital back without penalty. I should have chosen Nationwide. Now I'm confused as the terms of the SVR Skipton sold to me are identical to a tracker mortgage, even down to the guarantees and exceptional circumstances / get-out clause. The SVR Skipton sold was a tracker as far as I could see?

I did thank you for your last post Mark, because you raised a lot of arguments worth considering, however I'd appreciate a little more civility in your postings. Nobody likes to feel got at. I also feel that the quality of your arguments might be strengthened by some citations and references. I made reference to court of appeal rulings when arguing the meaning of exceptional circumstances to support my case, and would very much appreciate it if you did the same or similar. I'm not immune to the possibility I might learn something :-)

sarahbennett

mymoneyf wrote: »

I would also go as far as to question the very questionning of the "exceptional circumstances". Bold I know! Hehe. The very nature of exceptional circumstances is that they are not day to day and not ordinary. Hence this is the Skipton's way of saying that anything could happen essentially. They cannot define the exceptional circumstances, as to define them would be to expect them, and to expect them would surely mean that it would be folly to lend!
Just a couple of points I thought I'd raise as food for thought.

Hi, this is an interesting point, though I do think that if there was a minimum base rate that they were willing to track at 3% this would have been easy to put into the contract or if the base rate itself could have been applied as an exceptional circumstance, or Skipton's own financial position, it would have been good to know.

Do you know at what point Skipton stopped offering guaranteed 3% base rate tracker mortgages with the exceptional circumstances get out clause? Does anyone on this forum?

de1amo

i think anyone with any kind of product should be right behind sarah because if skipton can by pass their contract responsibilities then any other mortgage product tie in is breakable-i remember the days when i paid 15pc on the svr and their were no discount scheme-we should act as a site to back her cause

[Deleted User]

de1amo wrote: »

i think anyone with any kind of product should be right behind sarah because if skipton can by pass their contract responsibilities then any other mortgage product tie in is breakable-i remember the days when i paid 15pc on the svr and their were no discount scheme-we should act as a site to back her cause

I completely agree. If this sort of thing goes unchallenged then it could open the floodgates for all sorts of transgressions. We would all lose in the end. If honouring contracts means consolidation in the financial sector then they should just get on and do it. In particular, with some building societies, the best interests of members in general could be served by merging.

de1amo

it looks like the skipton 'merging with the scarborough could be some of the problem-i am with the Britannia who merged with the co-op--the ethical bankers! it was done for more than just the ethics--co op have retail access to funds and i saw that the brittania were smart in doing this.--maybe we should look more carefully at the balance sheet and the İntelligence of a building society managemnt before we 'join' them
İ had an isa many years ago with the skipton and the return compared to other places at the time was crap-so they didnt serve me right as a saver!

Thrugelmir

Maybe the Scarborough acquisition will help in the long run, maybe it won't, but it did affect capital position in the near term (see the Skipton accounts over this period, as published on their website, they themselves cite the acquisition as a reason for a large decrease in their profits).

This is a red herring. In simple terms as an example. Lloyds acquired HBOS. However HBOS is a seperate legal and trading entity. HBOS's figures are combined with Lloyds to prepare group accounts. If HBOS went bust then Lloyds would still exist. Lloyds is profitable, it's HBOS that isn't.

Building Societies have to adhere to Regulatory Capital Ratio requirements in the same way banks do as set by the FSA.

If the Skipton's Capital Ratio's are falling the Directors are duty bound to take corrective action.

Hence back to "Exceptional Circumstances".

By raising the interest rate. The Skipton is increasing profitability which increases capital reserves, is able to encourage more deposits, and is encouraging high equity borrowers to remortgage. Combined the effect is to maintain Capital ratios.

All of which the FSA in the current economic climate would back.

sarahbennett

You are saying the same thing Thrugelmir, that Skipton needed to maintain a capital position, and when it bought the Scarborough that was failing it cited exceptional circumstances to get out of its commitment with borrowers... I'm not going to second guess the FSA on this, or assume they'll be useless, though a lot of regulators are... we'll see what happens

Thrugelmir

sarahbennett wrote: »

You are saying the same thing Thrugelmir, that Skipton needed to maintain a capital position, and when it bought the Scarborough that was failing it cited exceptional circumstances to get out of its commitment with borrowers... I'm not going to second guess the FSA on this, or assume they'll be useless, though a lot of regulators are... we'll see what happens

Skipton and Scarborough would have merged. There was no consideration as both are mutual societies owned by their members.

While Scarborough may have had difficulties it wasn't "bust". If had of been it would have had to shut its doors to new lending entirely. In order not to breach Regulatory Capital Requirements.

As I would expect the Board of Directors acted in a proper manner.

3rd November 2008
Scarborough Building Society has seen difficult trading conditions leading to a substantial impact on profit and a resultant weakening capital position. In addition, the board of Scarborough has considered the possible impacts of continuing house price falls and the impending recession in the UK, and has concluded that the effect would be an unacceptable reduction in its capital resources and that, to fully protect the interests of its members, it should approach Skipton Building Society as its preferred merger partner.

So even they could not have foreseen base rates fall to .5% in 2009. They were still 3% at the time of the merger.