MSE News: Mortgage blow as building society hikes SVR

sarahbennett

Thrugelmir wrote: »

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.

This I don't disagree with. Now if Skipton are undercapitalised at the moment due to the low base rate and difference between capital coming in from borrowers and out to savers, why not consider asking mortgage customers for the same amount of extra capital, but enabling them to pay it in as capital rather than interest so reducing the length of their mortgage term? This would enable the Society to raise the additional capital needed to pay the savers the rates they need while the base rate is low, and when the base rate rises again and conditions change the mortgage SVR customers will go back to paying more interest again. This would seem fairer all round...

dasilva_2

Conrad wrote: »

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

Quite right. But there is no precedence for savers over borrowers. The law, FSA regulations etc. must be adhered to for both savers and borrowers.
On another note has the skipton got an exceptional circumstances clause in any of their fixed rate saving schemes that has been invoked to put UP the fixed rate.
'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!'
So for all your advice, it didn't stop you selling these products

The_Dentist

dasilva wrote: »

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.

I agree with your analysis. It is very finally balanced to draft a clause which will deal with all scenarios and at the same time not run to three pages. However in the context of drafting a mortgage contract the Society has virtually unlimited resources, time and access to legal and other professional advice while the consumer simply has to accept all of the terms or none of them. If the Society wanted to cover the scenario it is now relying on to break the SCR CAp guarantee it should have specified so. Its definition of "exceptional circumstances" provided retrospectively is not long or unclear.

I am not so convinced as others that "exceptional circumstances" would have been that difficult to define. It is not "unforseen circumstances" that the Society is being asked to define. Hindsight is a wonderful thing, however it does strike me as possibly one of only a few risks the Society faced (however improbable) as it was lending long and borrowing short. On that basis I am not so convinced that hindsight was that necessary. It isn't that likely given where I live that an object dropped from a plane or a sonic boom will damage my house (has anyones house ever been damaged by a sonic boom? Are people who live under flight paths actually materially more likely to suffer from objects being dropped from aircraft), however my insurer has assessed that as a risk (however improbable) and written it into my insurance contract. The insurers seem to manage the balance and they are governed by the same rules in terms of fair terms as banks etc.

I also agree that it does say that only a court can determine a "valid reason". If that is the case so be it. The FSO can refuse to consider a complaint if it feels that the complaint will be more appropriately dealt with by a court. I am not convinced however that the FSO would actually refuse to consider this issue. I interpret what is being said to mean that parties can disagree and the FSA can only provide guidance, but not the final word on the issue. I do not interpret what is being said to mean that this precludes the FSA/FSO from making initial or general decisions on the issue. The use of the word "ultimately" means just that, ultimately all laws and rules (in any spherhe) are subject to judicial interpretation, that does not mean that prior to any ultimate determination parties are not going to rely on them, enforce them and generally conduct their affairs in accordnace with them.

dasilva_2

The_Dentist wrote: »

I am not so convinced as others that "exceptional circumstances" would have been that difficult to define. I

Quite agree.
Infact those 'exceptional circumstances' would be far more difficult for a consumer to define or predict than they would be for a financial institution to define or predict if those circumstances relate as they do to financial circumstances.
As far as the FSA ruling on this, I don't think they particularly will and I do think it would be a better outcome legally if the clarity was defined by a court.

Joe_Bloggs

This is an aside and in does not relate to the original issue.
My question is could case law be integrated back into statutory law ?

To gain the benefits of case law you have to go to court. Should this be necessary in many circumstances when all can agree on what is just. The courts favour those who can hire the best legal teams. This is beyond most of the general public. Hence case law tends to serve only those who can afford it such as big corporations.

J_B.

The_Dentist

Joe_Bloggs wrote: »

This is an aside and in does not relate to the original issue.
My question is could case law be integrated back into statutory law ?

mmmmm.

A written case report, which details court proceedings is usually binding on lower (but not higher) courts. Unless of course a lower court can differentiate the case before it on factual grounds. But most reported cases are persuasive on other court decisions to some degree, unless a court decideds to go out of its way to overrule another court and reverse an earlier decision.

Generally parties conduct themselves as per statute as interpreted by courts. So yes parties look at legislation as interpreted (if it has been the subject of court proceedings - lots of legisaltion never will be) by the courts (case law).

Quite often the governement of the day passes legislation to give statutory effect to existing case law which it quite likes, which removes any doubt, and prevents the risk of a higher court over ruling the decision or a similar case being differentiated on the facts. Parties often still rely on those earlier cases when interpreting the subsequent legisaltion even although those earlier cases were not interpreting the statute at the time they were decided. Similarly of course the government of the day passes legislation specifically to reverse binding court decisions as it does not like them.

Thrugelmir

The_Dentist wrote: »

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.

Anybody conversant with the Building Societies Act 1986?

dasilva_2

Thrugelmir wrote: »

Anybody conversant with the Building Societies Act 1986?

In respect of what?
Is there a specific section that you feel is relevant to the debate?

MarkyMarkD

I agree with most of what has been said since I last posted, or at least the arguments have a lot of validity even if I don't agree with the conclusions.

Dentist - it's FOS not FSO. !

I still hold that FOS will do what FSA tell them, and that FSA must (whatever Sarah reckons) have approved this in advance, because without it, Skipton would go bust. And the FSA's over-riding concern - even over-riding normal concepts of "treating customers fairly" and contract law for that matter - is to prevent yet another large building society failure. And no, of course they won't admit that publicly.

sarahbennett wrote: »

This I don't disagree with. Now if Skipton are undercapitalised at the moment due to the low base rate and difference between capital coming in from borrowers and out to savers, why not consider asking mortgage customers for the same amount of extra capital, but enabling them to pay it in as capital rather than interest so reducing the length of their mortgage term? This would enable the Society to raise the additional capital needed to pay the savers the rates they need while the base rate is low, and when the base rate rises again and conditions change the mortgage SVR customers will go back to paying more interest again. This would seem fairer all round...

Sarah, I'm sorry, but you don't understand what capital is in this context.

Skipton's problem is that it is losing money. That is eroding its capital, which is the amount of surplus profits it has accumulated in past years.

It is not short of cash - liquidity. Mortgage customers paying off "capital" gives them cash, not capital. It doesn't make them profit, i.e. benefiting their capital.

"Capital" as in the "capital" balance of your mortgage is not capital, which is what all banks and building societies need to survive.

Thrugelmir

dasilva wrote: »

In respect of what?
Is there a specific section that you feel is relevant to the debate?

Without doubt it would be raised in the defence case in the event of a court case. Directors have legal responsibilities as to how the Society is operated.