MSE News: Mortgage blow as building society hikes SVR

JPS29

@ Dentist, you have PM

Leon_W

Very interesting Dentist.

I think it definately would put you in a different position to others and not for the better either. Usually the way these mortgage contracts are worded is that the property is to used for your own purposes and not let out etc etc (you would be more aware of the exact wording) but as a "concession" they are letting you break that contract, in that context I would say all bets are off and they can do with you as they please. I have known lenders impose a higher rate of interest on clients of mine when they have chosen to let the property due to the perceived higher risk (which is not really the case but a convenient excuse).

I do think that you are correct in your assumption that Skipton have dealt with your case on an individual basis and have looked for a specific reason to wriggle, but in this case I think you are probably on a hiding to nothing.

Responses to others will be different as they would have to specifically address the "exceptional circumstances" issue.

Thanks for the update.

JPS29

Re the above....

I have a residential mortgage with Skipton Group and also a BTL with them. The BTL was set up specifically as this, and I received the same bog standard letter re the SVR rate as everyone else. Could they wriggle out of mine too, a mine wan't a conversion from a standard residential with letting consent, but actually a "ready made" BTL?

howardtheduck

Dentist,

Worry not. Just tell the Skipton that you do consider yourself a consumer because you are not running a business. Ask Skipton to double check with Her Majesty's Revene & Customs as to whether Buy-to-Let qualifies as as business. I can tell you that HMRC DO NOT and never has regarded Buy-To-Let as a business unless it a) represents your main source of income OR b) it is incorporated as a company. I know this because I checked with HMRC their position on the status of Buy-to-Let. Since you are not running a business and (I'm assuming) do not have the properties as your main source of income and do not run them through a body corporate, ergo you are a consumer and do fall within the UTTCR 1999. (oh yeah!!)

(IANYL)

howardtheduck

JPS29,

Firstly JPS29, they won't be able to wriggle out of your BTL agreement. Like Dentist, you're a consumer and are covered by the UTCCR 1999. A 'consumer' is defined as a natural person who is acting for purposes which are outside his business. Both you and Dentist are covered by the UTCCR 1999 and Skipton is 'trying it on' with Dentist by using carefully chosen words like "seriously consider" if you "fall within the definition of "consumer" within the UTCCR 1999. It's a bluff by Skipton designed to make you blink first and back down. If they had any real faith in the strength of their legal position, they would sit back, relax and let the matter be settled once and for all at court (with the icing on the cake for them being that they'd opened the floodgates for every other building society and bank to renege on similar pledges and guarantees with impunity).

My advice Dentist. Don't blink first. Write back to them and inform them in no uncertain terms that you ARE a consumer and therefore do come within the remit of the UTCCR 1999. Send your letter by recorded delivery, state explicitly that you have sent the letter by recorded delivery so there can be no question of them having received it and finally, inform them that as of 1st March 2010, you're making the increased payments due to the SVR hike under protest.

Let's see how they like them apples!

Dentist, your 'Consent to Let' remains within the remit of the Financial Services Authority as your mortgage is still a regulated product.

JPS29, your BTL mortgage falls squarely within the remit of the Office of Fair Trading as it is a non-regulated product. The OFT is empowered under the UTCCR 1999 to deal with all non-regulated standard form financial services contract.

You are both still "consumers" within the meaning of the UTCCR 1999 despite Skipton's blustering.

(IANYL)

howardtheduck

The FSA and the Unfair Terms in Consumer Contracts Regulations 1999

The Unfair Terms in Consumer Contract Regulations 1999 apply across diverse business areas, of which financial services is but one. They are written in general terms and their interpretation is a matter for the Courts. To assist firms in interpreting and applying the Regulations, the FSA in May 2005 published a Statement of Good Practice on the 'Fairness of Terms in Consumer Contracts'. It sets out the FSA's interpretation of the Regulations in relation to contracts for products and services that are within the FSA's regulatory scope, with particular reference to variation terms.

The Regulations implement an EC Directive - Council Directive 93/13/EEC of 5 April 1993 - and they came into force in July 1995. The FSA gained powers under them in 2001 although it only began regulating mortgage contracts in 2004. However, under the Regulations the FSA can consider the fairness of terms in mortgage contracts from July 1995 onwards. That means it can look at mortgage contracts that pre-date FSA regulation and that pre-date Financial Services and Markets Act 2000.

There are some limits to the mortgage contracts the FSA can look at under the Regulations. For example, it looks only at first charge mortgages. Second charge and buy-to-let mortgage contracts fall to the Office of Fair Trading (OFT), the principal enforcer of the Regulations, for consideration. The FSA have an agreement - a Concordat - with the OFT setting out its respective responsibilities for financial services contracts under the Regulations. Broadly speaking, the FSA deals with contracts from authorised firms carrying out regulated activities and the OFT deals with all other standard-form financial services contracts.

The FSA interprets the Regulations in accordance with the objectives of the Directive. The recitals to the Directive provide some insight into these. A reference in the recitals underlines the importance of protecting consumers from unfair contract terms and from 'one-sided standard contracts and the unfair exclusion of essential rights in contracts.' It is apparent from the recitals that the FSA should also have regard to the bargaining strengths of the parties, any inducement which would cause the consumer to agree to a particular term and whether the firm is dealing fairly with the consumer, taking the consumer's legitimate interests into account.

The test to determine whether a contract term is fair or not is set out in Regulation 5(1), "a contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer."

Regulation 5 is always the FSA's starting point. When applying the fairness test, the FSA considers the overall fairness of the particular term in the context of the contract as a whole. For instance, an unfair term in a mortgage contract might cause greater detriment to the consumer if he is unable to avoid the term by withdrawing from the contract because of various applicable fees and, possibly, an early redemption charge. By contrast, a similar term in, for example, a contract for an instant access savings account might cause little or no detriment as the consumer can walk away from it more easily.

Regulation 5 refers to the concept of good faith. Good faith was dealt with in the judgment of the House of Lords in the case of Director General of Fair Trading v First National Bank Plc [2001] UKHL 52 with Lord Bingham saying that it was "not an artificial or technical concept". His Lordship explained that the requirement of good faith is one of "fair and open dealing" and that openness requires terms to be expressed "fully, clearly and legibly, containing no concealed pitfalls or traps". Lord Bingham also went on to say that fair dealing requires that firms should not, deliberately or unconsciously, take advantage of consumers, whether because of their lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position or a number of other factors.

A further aspect of Regulation 5 is that the significant imbalance must be to the detriment of the consumer. The view of the FSA is that this detriment may be actual detriment or potential detriment. In other words, even if an unfair term is not being applied unfairly in practice, the FSA will still consider if there is the potential for consumer detriment in the event that the term was to be applied unfairly. As a risk-based regulator the FSA will form a view as to the extent of the actual or potential detriment and its impact on consumers.

Schedule 2 of the Regulations sets out an indicative, non-exhaustive list of terms which may be regarded as unfair. Schedule 2 is indicative only and, whilst it can provide a useful basis upon which the FSA can consider further whether a contract term is unfair, the test of fairness is contained in Regulation 5. Also, the fact that a particular term in a contract does not offend or is not included in those listed in Schedule 2 may not, of itself, remove the risk of unfairness.

Regulation 7(1) of the Regulations states that a firm "shall ensure that any written term of a contract is expressed in plain, intelligible language."
If a term is not drafted in plain, intelligible language and there is doubt as to its meaning, then under Regulation 7(2) it is to be interpreted in the way most favourable to the consumer. It is therefore in the interest of firms to ensure that their contract terms are clear and unambiguous.

When the FSA receives a complaint under the Regulations it forms a view as to whether it thinks a contract term is potentially unfair, but only a court can decide whether it is actually unfair. The FSA have a statutory duty to consider every complaint that it receives, although it will not necessarily take action in every case. As a risk-based and proportionate regulator, it carries out a risk assessment to assess the level of actual or potential detriment to consumers posed by an unfair contract term. It does this to ensure that its resources are directed where they are most needed and where they will have most impact in protecting consumers.

When the FSA does decide to take a complaint forward, it first seeks the firm’s co-operation. It will ask the firm to agree to delete the term, or to amend it so that it is fair. The FSA will also ask the firm to undertake to treat existing customers fairly by treating them as if the new, fairly-drafted term was in their contracts. The FSA generally expect the firm to notify consumers of the change and will publish the undertaking given to it by the firm on both the OFT website and the FSA website, including details of the contract and the amendments. Publication is a requirement under the Regulations.

I hope you all found this post helpful.

(IANYL)

howardtheduck

Dentist,

To put your mind somewhat at ease if you think that Skipton might target you by withdrawing its permission to let your former residence for having the sheer audacity to question its SVR hike, I certainly wouldn't lose any sleep over their thinly veiled (and empty) threat.

Even if Skipton had (and I suspect it has not) in your case reserved certain powers e.g. to withdraw consent to let at any time at its discretion, the FSA would not simply allow such powers to be reserved unchallenged. Whilst it have no objection, per se, to lenders reserving powers to themselves in a mortgage contract, the ability to exercise those powers may give rise to a significant imbalance in Skipton's power over its borrowers and may therefore be deemed unfair.

(IANYL)

howardtheduck

Dispelling some myths about unfair contract terms

There are a number of myths which have grown up around unfair contract terms.

Myth 1 - 'Even if a term might be unfair on the face of it, but it is not applied unfairly in practice, that is what matters'.

The simple fact of the matter is that unfair terms are not legally binding on consumers. Regulation 8(1) makes that quite clear. How is the consumer, who has only the term set out in black and white in the contract in front of him, supposed to know how the firm will choose to apply the term in practice? That is not ‘open and fair dealing'. If a contract term is drafted in a way that is unfair and does not reflect a firm’s practice, it should be redrafted so that it is fair and reflects the firm’s practice and intentions.

Myth 2 - 'Firms need only pay heed to those publications that relate to their particular business area'.

Mortgage lenders might think that they need only keep up-to-date with undertakings relating to mortgages. That is not the case. The undertakings and other materials that the FSA publish provide a good indication of its views on the fairness of particular terms, and also give an insight into its interpretation of the Regulations and what it considers to be fair or unfair generally – and what it believes a court might consider fair or unfair. Such indications may be applicable across a range of contracts and business areas. Not all of them will have direct application or relevance to mortgage contracts, but many will. For example, undertaking published on the FSA's website advising firms that the use of legalistic language such as 'consequential loss' is not, in the FSA's view, plain and intelligible. Whilst such terminology is more likely to be found in an insurance contract, publication of this statement and undertaking should have alerted firms generally to the fact that their standard-form consumer contracts should not contain technical or legal terminology.

Similarly, the undertakings and guidance materials published by the OFT will not necessarily relate directly to mortgage contracts, but the indications they contain as to what may or may not be considered fair should be enough to alert firms generally to the fact that their standard-form consumer contracts should not contain technical or legal terminology.

Myth 3 - 'If a particular contract term is deemed to be unfair and the FSA or OFT ask for only that term to be amended or deleted, the rest of the contract must be fair'.

This is not necessarily the case and is a dangerous assumption. When the FSA receive a complaint about a particular term, it considers only the fairness of that term – albeit it in the context of the contract as a whole. The FSA is not a contract approval authority and does not have the resources to consider every term in every contract referred to it. Even where a contract term is amended as a result of FSA intervention, it may still be subject to further scrutiny if further complaints or other intelligence about it are received. The FSA has a statutory duty to consider every complaint it receives, and this includes those that relate to terms that have already been amended.

I hope you all found this post useful.

(IANYL)

howardtheduck

In the Halifax case, the FSA considered certain terms in mortgage contracts that enabled firms to impose a floor, or to determine the interest rate payable by the consumer once a certain 'trigger' in the benchmark rate was reached. Although the FSA is generally not concerned with the fairness of an interest rate floor per se, firms should ensure that they are drafted in a way that is balanced and fair. Furthermore the FSA requires firms to ensure that the consumer is made aware of the existence of a floor, trigger or similar feature in an appropriate manner and at both the pre-application and offer stages, in accordance with its Mortgage Conduct of Business rules.

How many of you (besides Thrugelmir, MarkyMarkD and Vigilant22) would agree that Skipton made its SVR mortgage borrowers aware of the existance of a "floor, trigger or similar feature in an appropriate manner and at both the pre-application and offer stages", in accordance with the FSA's Mortgage Conduct of Business rules?

I hope you all found this post useful.

(IANYL)

howardtheduck

Just for the avoidance of doubt, the "pre-application" stage would be the Key Facts Illustration. Guess what? There's no mention of a "floor, trigger or similar feature" in my Skipton mortgage KFI (either the residential or the BTL one) nor to the best of my knowledge is there mention of a "floor, trigger or similar feature" in any of Skipton's KFI's.

As for the mortgage offer stage, it is highly suspect to suggest that I and other Skipton mortgage borrowers were made aware of the "exceptional circumstances" proviso tucked away towards the bottom of page 5 of the Terms & Conditions of my mortgage offer in an appropriate manner in accordance with the FSA's Mortgage Conduct of Business rules.

Naughty naughty Skipton. It appears it's breached the FSA's Mortgage Conduct of Business rules.

(IANYL)