MSE News: Mortgage blow as building society hikes SVR

MarkyMarkD

dasilva wrote: »

Marky Mark posted in the northern rock thread 'NR were successful and solvent, but they had a seriously flawed business model which totally depended upon the continued availability of funding via securitisation. I have posted before that they could easily have avoided disaster by cutting back their pace of lending and keeping a buffer of funds available - hence stopping lending before "the music stopped" leaving them with a pile of new mortgages and no money to fund them.'
You seem to be the master of hindsight.
Unfortunately 'hindsight' has no place in contractual law. Skipton also had a business plan which involved selling a mortgage product with a guarantee.
Unfortunately they didn't plan for the bl*@ding obvious ie:rates can go down as well as up. So when they realised their plan was not working they opted for the 'exceptional clauses' plan.
So can I ask you 2 questions to which you can give a non 'politicians ' answer.
1. Should a contract include a clause that because it is undefined is so vague that it could mean anything?
2. Even if a contract does include such a clause, should only one party be able to define that clause at a later date to the detriment of the other party?
I really take on board most of what you are saying as to why the Skipton have done this but I actually agree with other people that what they have done has had the effect of 'tearing up their contract'.
You also state ''Im quite willing to leave you to pursue your campaign, the only consequence will be that Skipton is forced out of business and another mutual will bite the dust. That won't be a great outcome, but at least you'll have avoided paying the extortionate rate of 4.95% on your mortgage. :rolleyes:"
The consequences of this would be that the liquidator would have to sell these mortgage contracts with the guarantee still in the contract or the government bail them out just like NR That is of course assuming Skipton still hold the mortgage debt and have not securised it.

It's easy for any of us to be masters of hindsight ... or foresight, for that matter. Sarah seems to have had a better ability to forecast interest rates than all the experts employed by the banks and building societies, for example.

I can't accept that Skipton sold a product with an absolute guarantee. Clearly they did not, or they wouldn't have included the exceptional circumstances clause in their contract.

To answer the two questions:

(1) I've already said several times on this thread that Skipton should, and could, have worded their "exceptional circumstances" clause more specifically. But they didn't. Just because it could have been more specific doesn't, necessarily, render it unenforceable. I think (to refer to case law as Sarah would like me to) it often depends on the view of "the man on the Clapham omnibus" as to what something means. I think that anyone impartial - and I am impartial in this issue, whilst most people on this thread are not - would accept that the current economic circumstances are exceptional. There is an extent to which the "man on the Clapham omnibus" test is over-ridden by the Unfair Terms in Consumer Contracts Regulations, but I personally think that UTCCR is bad (and unnecessary) legislation.

(2) One party to a contract cannot over-ride a reasonable interpretation of a vague clause to their advantage. But that's not (IMHO) what Skipton are doing - they have explained why they consider that the clause has been triggered; they have not rewritten their contract to include a new specific interpretation of their clause. That is why they say in their explanation that new exceptional circumstances could still arise, even if the current "test" fail to apply.

Of course, I appreciate that the government would step in, or another building society, if Skipton were to fail. But that would remove another - large - building society from the competitive lending and saving marketplace, and ultimately be bad for all consumers. And, if the Bradford & Bingley approach was taken, that would lead to yet another huge cost to other banks and building societies, which is money they can ill afford in the present climate.

dasilva wrote: »

Funnily enough, I accept that rates of 0.5% for a sustained period are unusual, but would you not have expected a major financial institution who has promised to follow that rate to not have modeled for that eventuality because if it was me I would have worked out wether it was sustainable at 0% and if it wasn't, stated at the outset, at what level the guarantee fails.. But as I have stated that is not even how the Skipton have defined the exceptional circumstances that have prompted them to invoke this clause. They state (retrospectively, I hasten to add) that a rate of 2.7% or less is exceptional, even if for 1 day as there is no period of time in their definition. A well written contract allows no room for misinterpretation. A vague undefined term allows plenty of room for misinterpretaion, hence the need for the Unfair Contract Term Act because in a contract both parties are equal in law. Would the Skipton allow one of its customers to define an exceptional circumstance?
The contract should really have had in it an exceptional circumstances clause where the exceptional circumstance is defined by an independant third party or the clause was clearly defined at the commencement of the contract. Then there would be no argument.

I'm afraid that this is hindsight speaking - the thing you told me off for doing.

90% of lenders offered tracker rate mortgages with no floor to the rate payable. What Skipton did is LESS silly than them - it at least included an "exceptional circumstances" clause. But the rest of the 90% didn't consider any likelihood of the present circumstances. If I was Skipton, I would be using that as part of my argument that the circumstances were not considered likely - and are therefore exceptional - according to most of their peers.

Others have posted that including an "exceptional circumstances" clause which defines those circumstances is rather difficult. It requires hindsight. The danger in attempting to define such circumstances is that you'll always miss a few possibilities, and those few possibilities will be the circumstances which catch you out.

Honestly, did anyone (apart from Sarah) predict base rates of 0.5% for a year or more? Or fixed savings rates of 4% above Bank of England base rate? Those are the exceptional circumstances which have caused Skipton to invoke their clause.

So, I come back to a "man on the Clapham omnibus" argument. Would a sample of ordinary people say that the combination of circumstances detailed above are normal, if they were given the historical evidence on both measures? I really don't think so.

The_Dentist

MarkyMarkD wrote: »

One party to a contract cannot over-ride a reasonable interpretation of a vague clause to their advantage.

Yes they can. (itallics and underline added)

[SIZE=+1]"The Unfair Terms in Consumer Contracts Regulations 1999[/SIZE]...

...Written contracts
7. - (1) A seller or supplier shall ensure that any written term of a contract is expressed in plain, intelligible language.

(2) If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail but this rule shall not apply in proceedings brought under regulation 12...."

dasilva_2

Markymark. There is a lot there that I agree with, but other bit where I have to disagree.
'Just because it could have been more specific doesn't, necessarily, render it unenforceable.'
I again agree with this, it doesn't, but once again it is not up to just the Board of the Skipton to decide. I think clarity is required and the only people who can give that clarity and rule on the enforceability are the courts.
'I think that anyone impartial - and I am impartial in this issue, whilst most people on this thread are not - would accept that the current economic circumstances are exceptional.'
But no one impartial was consulted. The Skipton Board, one of the parties to the contract just defined it themselves. My question would therefore be would a Skipton borrowing be able to blame the same exceptional economic circumstances as a reason for not paying their mortgage.
You also state 'I am impartial'. Well so am I, I have no skipton accounts, but I disagree with you. Hence once again the need for legal clarity not 'Clapham Omnibus' clarity.
'There is an extent to which the "man on the Clapham omnibus" test is over-ridden by the Unfair Terms in Consumer Contracts Regulations, but I personally think that UTCCR is bad (and unnecessary) legislation'
Good or bad, it is legislation, the man on the Clapham Omnibus as you quite rightly note cannot overide legislation.
'90% of lenders offered tracker rate mortgages with no floor to the rate payable. What Skipton did is LESS silly than them - it at least included an "exceptional circumstances" clause.'
We will have to beg to differ here. I still cannot see how a financial organisation which sells a product linked to the level of the base rate can then through out that link due to the level of that base rate.
I certainly don't agree that my last comment was one of hindsight. It is fact that a badly written contract leads to disputes. Otherwise this thread would not exist.

The_Dentist

dasilva wrote: »

I still cannot see how a financial organisation which sells a product linked to the level of the base rate can then through out that link due to the level of that base rate.

That is it in a nut shell. I think the FSO will rule in favour of those complaining. There are a whole host of possible grounds of complaint but I think fundamentally this is the one which will carry most weight.

"exceptional circumstances" is a bit of a red herring. It was drafted into a standard form consumer contract by the party with the superior bargaining strength and it is ambiguous. You can run through the regulations/ legislation and even the guidance of the OFT/FSA in relation to unfair contract terms and come up with a whole host of reasons that this part of the clause should be held pro non scripto (as if it had never been written), with the remainder of the contract being fully enforceable by both parties. 30+ years of consumer protection legislation is aimed squarely at clauses like this.

I am quietly confident that the FSO will uphold complaints made on the basis of an unfair contract term.

Thrugelmir

While this is an interesting debate.

I see no mention of the rules and regulations by which the Directors of the Skipton Building Society are duty bound to comply with.

In the current economic and financial climate prudence would seem to be a reasonable concept. Particularly as the change in SVR will be reviewed once normal funding markets return.

Interest rates are going to rise in the future. The additional cost now for a few months will pale into insignifiance once rates rise back to market levels in the future.

dasilva_2

Thrugelmir wrote: »

While this is an interesting debate.

I see no mention of the rules and regulations by which the Directors of the Skipton Building Society are duty bound to comply with.
.

What about contract law?
What about unfair contract terms act?
They are duty bound to comply with all aspects of law.

The_Dentist

Thrugelmir wrote: »

While this is an interesting debate.

I see no mention of the rules and regulations by which the Directors of the Skipton Building Society are duty bound to comply with.

There are principles, rules, regulation , guidance, codes of practice, legislation, common law. In terms of complaining to the FSO I doubt it will make much difference which category the breach you are complainig of fits into. A court action will be slightly different. A court may not give as much weight to guidance issued by a regulatory body and of course would be entirely free to ignore it. But I doubt that it would be the case that the guidance would not form part of an inventory of productions lodged by one of the parties and at least be considered by a court.

Generally the FSA handbook refers to all of the different categories at some point. Although it is perhaps obvious that the Society should comply with UK legislation I beleive that is also a requirement of the handbbook.

The specific part of the handbook on unfair contract terms is as follows:-

fsahandbook.info/FSA/html/handbook/UNFCOG/1

Within the FSA handbook reference is also made to the FSA's good practice guide, and the specific link to that is as follows:-

fsa.gov.uk/pubs/other/good_practice.pdf

This is probably the most interesting read as clearly it lays out the FSA's thoughts on the matter which in turn is incorporated into the FSA handboook by which all regulated firms are bound.

Conrad

And of course the FSA also want fair terms for thier savers - perhaps someone elderly reliant on interest for income.

Incidentaly about 2 years ago on the investment section I ran a thread warning people of Building Societies that had significant risk to sub prime lending. The thread was dismissed as nonsense. What did I know - I was just a bod arranging sub prime loans with subsidaries of Skipton, Yorkshire Derbyshire and others!

dasilva_2

The_Dentist wrote: »

Within the FSA handbook reference is also made to the FSA's good practice guide, and the specific link to that is as follows:-

fsa.gov.uk/pubs/other/good_practice.pdf

This is probably the most interesting read as clearly it lays out the FSA's thoughts on the matter which in turn is incorporated into the FSA handboook by which all regulated firms are bound.

I've read that before and it is as clear as mud.
see this bit

'3.8 If a contract contains a clause which provides that the firm may change a
contract variable, for example: ‘for any reason we see fit’, ‘for any reason that
we consider reasonable at the time of the change’ or ‘to cover unexpected
costs’, in our view that firm is not specifying a valid reason in the contract but
is, instead, leaving its options open. We would expect a ‘valid reason’ to be,
amongst other things, clearly and unambiguously defined.
3.9 The greater the number of valid reasons given in the contract then, potentially,
the less plain and intelligible the variation clause may be.'

So in 3.8 it is saying you must lay out ANY reasons to alter the contract explicitly, but in 3.9 it is saying in effect,' but not too many'

The important one is this though
'3.7 Ultimately, only a Court may decide what constitutes a ‘valid reason’.'

It's not the board of the Skiptons decision, it's not markymarks decision, it's not my decision. That decision lies fairly and squarely at the door of the courts.

Pincher

Conrad wrote: »

And of course the FSA also want fair terms for thier savers - perhaps someone elderly reliant on interest for income.

Incidentaly about 2 years ago on the investment section I ran a thread warning people of Building Societies that had significant risk to sub prime lending. The thread was dismissed as nonsense. What did I know - I was just a bod arranging sub prime loans with subsidaries of Skipton, Yorkshire Derbyshire and others!

By 2007, loads of people were warning against subprime, but it doesn't matter if people believed you. Telling poor people they shouldn't buy a house is like telling illegal immigrants they shouldn't come to Britain. Self-certification needs an unprincipled lender, as well as a desperate borrower. A commission based broker with nothing to lose if the house gets repossessed refusing to arrange a sub-prime mortgage, now that would be news.