MSE News: Mortgage blow as building society hikes SVR

dasilva_2

OFT guidelines state this as an unfair contract term.
13.5 Right to decide the meaning of terms. Similarly, if a supplier reserves the
right to decide what a term in a contract means, then he is effectively in a
position to alter the way it works so as to suit himself. It is not sufficient to
say that the supplier will act 'reasonably'. Such a term gives rise to the
same objections as a right to vary terms generally, dealt with in Group 10

Pincher

The whole thing smells like a dozy complacent management snapping into crisis mode because the annual report looks bad. Some directors are looking for an instant fix for a problem they should have looked at when BOE went to 0.5% 11 months ago.

All Skipton had to do was what Nationwide did earlier on,
which was to offer new terms and conditions to new borrowers: you can take it or leave it, and they kept their BOE+2.0% max SVR for old customers.

Complaining about funding difficulties is like saying they have a sick grandmother and ten kids to feed. Every business has rising fuel, raw material, rates and a million other costs to juggle. If the competition does it better, they survive.

What Skipton is doing is like an insurance company playing the denial of claims game, skirting on the edge of legality and relying on customer inertia. It's a terrible way to run a company, and only serves to undermine its own credibility and will lose them customers in the long run, even if they get away with it.

It's unlikely that FSA will fine Skipton. They just have to refund the borrowers and say sorry if they get overruled, so why not try it on?
The side effect of some people might get repossessed is just a minor consideration.

MarkyMarkD

Hi Sarah

sarahbennett wrote: »

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.

But as I keep saying, they are not saying that the base rate in itself is exceptional. That is just one of TWO necessary conditions. Both the base rate has to be very low (far lower than any time in the past few decades) AND savings rates have to be such as to reduce the margin from SVR lending below an acceptable level. (If you accept the level of that acceptable level).

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.

I didn't actually say that. I said that they would have been improvident to offer the guarantee - but they weren't, because they qualified the guarantee with the exceptional circumstances clause. You cannot argue, logically, that they cannot rely on the clause because of their improvidence - when the clause is specifically designed to prevent the very same improvidence. You may argue that the improvidence is elsewhere - but I don't agree. The improvidence is, to a massive extent, due to exactly the same exceptional circumstances referred to.

I don't believe that any lender insured against the risk of a fall in interest rates. That would not have been economically viable. What the more sensible lenders did was impose a floor on their tracker rates e.g. "BBR (or 3% if higher) plus 1%". No point insuring a risk (at a cost) when you can simply define your product terms better.

But, and I'm repeating myself, Skipton probably believed that they were being fairer to their customers by using an "exceptional circumstances" clause rather than including a floor on their tracker rates, and the actual out-turn has proved that. If your original rate had been BBR+1.95% but the BBR in the calculation could not go lower than 3%, you'd be paying 4.95% now - as you will following the Skipton's change. But you'd have been paying more throughout the last year. By doing it the way they have, Skipton have benefited all their SVR borrowers more than a straightforward BBR floor as used by quite a few other lenders.

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.

EL didn't have an exceptional circumstances clause, so that's irrelevant. Nor are any other lenders WITHOUT exceptional circumstances clauses seeking to vary their guarantees, because there is no legal way for them to do so and nor would the FSA allow them to do so.

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).

But that's life. Acquisitions are almost inevitably a short-term cost, for a long-term gain. It would be poor management to ignore a long-term opportunity because it causes a short-term profit reduction.

Anyway, the cost of the guarantee is massive; the cost of the Scarborough is small. It's not a relevant factor.

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)

No, you were sold an agreement which enabled you to benefit from any fall in the BBR other than in exceptional circumstances.

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.

Just because Nationwide are irrational does not make Skipton's compliance with their contractual terms wrong or unenforceable.

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.

BBBR is, and always has been BBR give or take a few days' difference in the date of change. My mortgage is a tracker against BBBR and I'm not losing sleep because the offer specifically states that "where BBBR is referred to it means BBR". That is enforceable. The letter which you refer to is not an offer letter and the wording is not part of the KFI or the mortgage contract - it's just "reason why" wording which doesn't over-ride the detailed Ts & Cs.

"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 got the impression that, as you had chosen to buy a product way off "best buy", you must have had some credit reasons for doing so. Maybe I misunderstood? If you simply chose the Skipton SVR at a far higher tracking rate than others, because of a potential future gain, you were making a poor choice. Even if you don't like Barclays, Co-op Bank were offering trackers at between 1% and 2% above BBR at the same sort of time. Hardly anyone else's genuine trackers had get-out clauses - Barclays' doesn't.

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 :-)

I'm not a lawyer and there are virtually no relevant citations or refences for these circumstances. The main issues are that the FSA have said that anything not in a KFI is unenforceable.

I certainly do not intend to be uncivil but if I post when I'm tired (like now) I might sound that way. Sorry!

I don't think you've answered these two points (and not sure I've actually made the first one in so many words):

- I believed that the Skipton exceptional circs wording was actually within the KFI, whereas others' exceptional circs wording (Nationwide's or Halifax's) were not and therefore were unenforceable.

- I am 1000% convinced that the FSA will not uphold any action against Skipton on this, and therefore that FOS will not do so either, because FSA would have blocked this move if they were unhappy with it.


Regarding some of the later posts, I don't believe that this is a change in terms. It is invoking a contract term.

As for the comments about it vaguely defined terms being interpreted against the party who defined them, I understand that legal concept and I think it has quite some mileage. Or at least, it would, had the FSA not approved this before Skipton did it.

sarahbennett

"But as I keep saying, they are not saying that the base rate in itself is exceptional. That is just one of TWO necessary conditions. Both the base rate has to be very low (far lower than any time in the past few decades) AND savings rates have to be such as to reduce the margin from SVR lending below an acceptable level. (If you accept the level of that acceptable level)."

Where did you get this from? Quick correction, yes they are, it is OR not AND

http://www.skipton.co.uk/mortgages/svr/ourSvr.aspx

You state incorrect facts with great confidence, it might be helpful if you checked first

sarahbennett

"EL didn't have an exceptional circumstances clause, so that's irrelevant"

EL were pleading exceptional circumstances but the courts repeatedly ruled that those with guarantees must stick to them. I haven't read the EL agreements so I don't know if any rights were reserved in them...

sarahbennett

"I believed that the Skipton exceptional circs wording was actually within the KFI, whereas others' exceptional circs wording (Nationwide's or Halifax's) were not and therefore were unenforceable."
What makes you think they were in the KFI? Can anyone confirm this, I don't remember reading them...

dasilva_2

sarahbennett. please check your private messages (above the post's)

MissMoneypenny

Gorgeous_George wrote: »

You may wish to look at May 1988 to October 1989 here.

7.38% to 14.88% under a Tory Government. And they'd been in for 9 years and hadn't suffered the worst world financial meltdown ever.

I can't believe that some people still want to believe that New Labour have done a good job. Labour have all but bankrupt the country. The UK is in a very bad state now and it will take us years to recover from the Brown/Blair years of mismanagement. Brown is still borrowing like mad and investors will not lend to the UK at the same interest rate as France (France, of all countries) because the UK is deemed a bad risk.

Head out of the sand time. You are going to be working longer, harder and for less money, as we have massive New Labour debts to pay back.

de1amo

İ see what is being 'fought' out on this thread as the beginning of the slide back to the 1989 bad days--if skipton slips this change through it will open the flood gates to cart blanche to hike svr and sweep away many if not all fixed deals--back in 1989 mortgage products hardly existed and this could see return if logic is followed--in those dark days the interest rates were hiked over night exposing all the people caıught in the buying bubble and over extension of lending--does this sound familiar??--i never got caught then but learnt that taking credit i couldnt cover was aa dangerous path

MarkyMarkD

sarahbennett wrote: »

"But as I keep saying, they are not saying that the base rate in itself is exceptional. That is just one of TWO necessary conditions. Both the base rate has to be very low (far lower than any time in the past few decades) AND savings rates have to be such as to reduce the margin from SVR lending below an acceptable level. (If you accept the level of that acceptable level)."

Where did you get this from? Quick correction, yes they are, it is OR not AND

http://www.skipton.co.uk/mortgages/svr/ourSvr.aspx

My mistake, sorry.

sarahbennett wrote: »

You state incorrect facts with great confidence, it might be helpful if you checked first

"EL didn't have an exceptional circumstances clause, so that's irrelevant"

EL were pleading exceptional circumstances but the courts repeatedly ruled that those with guarantees must stick to them. I haven't read the EL agreements so I don't know if any rights were reserved in them...

You raised the example of EL, but don't seem to have checked what argument they were actually using. I don't recall any mention of them having an exceptional circumstances clause.

sarahbennett wrote: »

"I believed that the Skipton exceptional circs wording was actually within the KFI, whereas others' exceptional circs wording (Nationwide's or Halifax's) were not and therefore were unenforceable."
What makes you think they were in the KFI? Can anyone confirm this, I don't remember reading them...

I really cannot believe, Sarah, that you have got as far as you have with your campaign, including supposedly getting expert legal advice, without actually looking at a Skipton KFI. How on earth have your legal advisers told you that what Skipton is doing is unenforceable, without looking at the KFI.

Completely

de1amo wrote: »

İ see what is being 'fought' out on this thread as the beginning of the slide back to the 1989 bad days--if skipton slips this change through it will open the flood gates to cart blanche to hike svr and sweep away many if not all fixed deals--back in 1989 mortgage products hardly existed and this could see return if logic is followed--in those dark days the interest rates were hiked over night exposing all the people caıught in the buying bubble and over extension of lending--does this sound familiar??--i never got caught then but learnt that taking credit i couldnt cover was aa dangerous path

I'm sorry, but the "slippery slope" argument is completely bogus. There is no slippery slope from enforcing a term which WAS contained within the Skipton mortgage contracts, to making up terms which are not contained within other mortgage contracts.

de1amo - you seem to be confusing a few things, too. Lenders already have carte blanche to hike SVR to any level they like - unless they restricted it within their mortgage conditions. Very few lenders have any restrictions on their flexibility to increase their SVRs - Skipton, LTSB (C&G) and Nationwide were the main ones. The rest can charge 50% SVR if they want to.

There is absolutely no chance of lenders increasing fixed rates (or, conversely, reducing fixed bond rates) as others seem to have claimed is a possible consequence of what Skipton have done. That is based on the incorrect press reporting that Skipton have "ripped up their agreement with borrowers" when in fact they have simply applied a term that was part of their agreements.

Whether or not that term is enforceable is what Sarah and I have been discussing - not whether lenders can simply add terms to their mortgage contracts after the fact - although Sarah would probably claim that the original term was unenforceable because it was too vague, and that Skipton have added specific interpretations of the exceptional circumstances clauses which mean they have effectively added terms to the contract.