MSE News: Mortgage blow as building society hikes SVR

sarahbennett

howardtheduck wrote: »

Skipton can harp on about doing so merely for the purposes of clarity but it does not detract from the fact that the "exceptional circumstances" clause is a 'force majeure' clause which, before it could be relied upon by the Skipton, needed to be clearly defined in the contract and cover the particular event that had arisen (the historically low base rate).

Their response to this might be that if something is exceptional in the sense that it is truly unusual and out of the ordinary it is by its very nature difficult to define in advance. Therefore the clause could not possibly predict all such circumstances as may arise.

On our side we could perhaps argue the very existence of floors and ceilings in financial products industry wide to cover the precise points at which any guarantees that may be made fail are industry wide evidence this type of circumstance is foreseeable.

howardtheduck wrote: »

Instead, it is crucial for Skipton to define what it intends the ‘force majeure’ to mean.

I think Skipton will concede their responsibility in demonstrating circumstances are exceptional for them to remove the guarantee. What they use to back up this assertion will be interesting, I'd imagine they will commission at least one third party report and more than one expert testimony, our cross examination of this and any testimonies, as well as our own testimonies and report/s may go some way to making our case. Specifically, our arguments may include the relatively new change in powers to set Base Rates resulting in a predictably different base rate setting environment, the fact of near zero base rates in Japan and below 2.7% base rates in the USA and many European countries. As a financial institution they ought to be keenly aware at the point at which their guarantee will fail, in base rate terms, and should make provision for that by putting a floor in place on their agreements. To support our case we may put forward examples of other SVR or base rate trackers that have floors, savings agreements with ceilings etc...

(I can't afford a lawyer...)

howardtheduck

By the way, how many of you have voted in respect of the Skipton AGM on 27th April 2010? It's your chance to make your views known.

I'm voting against all the ordinary resolutions as well as against the election and/or re-election of all the Directors.

(IANYL)

howardtheduck

It shouldn't be too difficult to find examples of other SVR's and base rate trackers with floors/ceilings or savings agreements with ceilings. From what I understand, there's a plethora of them out there.

The wording of Skipton's SVR ceiling is reproduced below:

"The residential standard variable rate is guaranteed not to exceed the Bank of England base rate from time to time by more than a differential of 3% pa (or 3.25% pa if you do not have a direct debit discount). This differential plus the Bank of England base rate is called the "variable rate ceiling".


(IANYL)

sarahbennett

FOS has guidance regarding contract terms (see http://www.financial-ombudsman.org.uk/publications/ombudsman-news/50/50.pdf), stating that to be enforceable a term must be properly incorporated into the contract. In this case, I expect Skipton will argue the exceptional circumstances was in the contract from the outset, and not later introduced... but its arguments may be weaker over the issues of (1) reasonable inference, and (2) prominence of onerous terms/pitfalls.

I anticipate much of the discussion will centre around the relative prominence of the guarantee compared to the exceptional circumstances clause. Skipton may argue the two share the same level of prominence, neither is in bold type, neither used in promotional materials to sell SVR agreements, both are on the same page etc. They may argue that most (if not all) their SVR customers do not directly purchase SVRs but base rate trackers or fixed rate mortgages that "revert" to SVR, and therefore are unlikely to have been enticed to purchase their mortgage product as a consequence of the base rate guarantee.

Some facts that may support our case include that the word "guarantee" is used more than once in the contract, that the wording related to the guarantee is placed higher up on the page than the wording relating to exceptional circumstances. That the guarantee is expressed in absolute terms, that there's no sub clause, and that it is not expressed as "subject to" any other clause or variable. We could also argue that it would be reasonable for the consumer to attach significant weight to the word "guarantee." Might we be able to argue the definition of any specific base rate as "exceptional" by its nature effects the imposition of a floor, that being generally recognised as an onerous term or pitfall, and that the creation of such a floor should therefore have been given extra prominence? By inference could the very fact that a floor may be later introduced as part of a force majeure argument have meant the clause itself should have been given far greater prominence? And that equal prominence in this context would not be sufficient?

(1) Guidance states that to be enforceable contracts must not: "infer terms that cannot reasonably be inferred from what the contract says."
In this case it may be reasonable to argue the fact no mention was made of a base rate floor in the context of a contract environment where such a floor is commonly clearly stated, means it is not reasonable to expect the customer to infer from the contract the later existence or retrospective introduction of such a floor.

(2) Did the Skipton bring the onerous term to the attention of consumers before the contract was signed? From FOS cases I have read they look for prominence of the onerous term in contract paperwork, such as the offer letter, and introductory meeting with the Society, and the onus is on the Society to point out the onerous term to the consumer, showing it has given it due prominence.

I expect the Society will argue that due prominence was given to the onerous term as it was not incorporated retrospectively, could, they will argue, have been reasonably inferred, and was, they will argue given due prominence in the contract paperwork. The evidence they bring to support these claims will be interesting, but they may for example cross examine a witness who says that they felt the guarantee had high prominence and point out that the exceptional circumstances clause had equal, and therefore also "high" prominence...

Just some thoughts...

sarahbennett

howardtheduck wrote: »

By the way, how many of you have voted in respect of the Skipton AGM on 27th April 2010? It's your chance to make your views known.

I'm voting against all the ordinary resolutions as well as against the election and/or re-election of all the Directors.

(IANYL)

Ditto, and I agree

sarahbennett

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

"We have promised to track the performance of these two tests and advise when they no longer prevail. When this happens, we will voluntarily reinstate the ceiling for customers who had the benefit of it under their mortgage terms, provided no other exceptional circumstances have arisen in the meantime." Emphasis added.

One other thing I thought of is public opinion... borrowers are seen by many as reckless people who should be punished, having had it "too good for too long" with low interest rates, whining, and how unreasonable when they are just being asked to pay interest rates as low as under 5%? While savers who have been prudent and self sacrificing all their lives are now suffering... I think this is the general climate, and it would be perilous for us to ignore that... Never mind the rights or wrongs of our case or of the law, those squealing the hardest against us on this thread represent the tip of the iceberg, we need to bring far more support to our arguments because, our opponents can gain substantial support by just pointing at us and saying "nasty borrowers..." :-)

MarkyMarkD

I think you two should simply get a room as nobody else is interacting in this thread. Or maybe just use private messaging to exchange your email addresses and do it all off MSE?

Having said that, Sarah's post:

Exceptional Circumstances
(1) Bank of England Base rate of 0.5% is unprecedented, the lowest in its 300 year history (so there are Exceptional Bank Base Rate Conditions)
(2) This has made it very difficult for building societies to obtain funding from the retail markets (so there are Exceptional Market Conditions)
(3) As a result the Building Society sector has lost money to unprecedented levels (so there is objective evidence of the exceptional market conditions referred to in 2 above)
(4) Also related to 2, above, another factor that has distorted the savings market in an unpredictable manner is the unprecedented government support given to Banks, from which building societies cannot benefit.
(5) Also related to 2, subsidised banks have been competing for savings to reduce reliance on the wholesale markets, leading to much higher competition for savings (Exceptional Competition).
(6) The gap between the high cost of retail funding and the income generated by the low base rate is unprecedented and exceptional
(7) This is evidenced by the general decision within the sector to raise SVR rates to reduce the gap referred to in 6 above.

is a pretty sensible summary of the case for the opposition, particularly because every single point quoted in the 7 points is 100% factual.

Indeed, you could go further than (7) - most lenders didn't need to increase their SVRs, because they weren't set at such a low level in the first place. It's not just the upwards shift of other lenders' SVRs that is the point, but the fact that Skipton's was significantly below average even before these increases started to occur.

howardtheduck

MarkyMarkD, when I want your opinion, I'll give it to you.

(IANYL)

sarahbennett

MarkyMarkD wrote: »

I think you two should simply get a room as nobody else is interacting in this thread. Or maybe just use private messaging to exchange your email addresses and do it all off MSE?

Mark, it is clear to me that many others are reading (even if not commenting on) this thread, as I have had a number of off-thread private messages come to me recently about it (in fact, just got another one). And I'm sure that people will join in with salient comments... If I did not think it were useful, I'd not be interacting via MSE. There is another thread on this same topic on MSE, that perhaps people can go to as an alternative to this one, who are finding this thread tedius or dull:-

http://forums.moneysavingexpert.com/showthread.html?p=30044545#post30044545

Regarding the factual accuracy of points 1-7 in the Skipton case I outlined, I don't doubt it, but I'm astounded that, in the context of a floorless mortgage, the base rate itself, whatever its value can be quoted back to me as an exceptional circumstance, this is not a force majeure in the traditional sense, where's the Tsunami?

No question I felt cheated, when I saw they'd invoked the exceptional circumstances clause over the low base rate. The CEO did assure us when the base rate made its historic drop our guarantees would be safe. The word guarantee means something to me, carries a certain weight, it was not phrased as guaranteed except in exceptional circumstances. It was phrased in a single term, as guaranteed at all times to be no higher than 3% above the Base Rate. Times are difficult for everyone, it is harder to get work, etc. The recession has not only hit building societies.

Mark, while you are still here, as a finance industry person, are you aware of any SVR or base rate tracker products that have a base rate floor?

JPS29

@ Mark and others.....

I am one of the people who is actively watching and subscribed to this thread and constnatly check for updates. Granted, I have a vested interest as I too believed the promise/guarantee, call it what you will from David Cutter.

It may be that the reason Sarah and Howard are the main contributors to this thread now is that most points have been covered, they are simply bringing up possible tactics and defences.

TBH I'm glad that they are now the main posters as I got fed up of checking every time I got a new post update to simply find people constantly posting the likes of, deal with it, tough luck, if you couldn't afford it you shouldn't have taken it blah blahblah.