MSE News: Skipton faces legal challenge over mortgage rate hike

hallmark

Personally I think we have the worst of a bad bunch

Dan_1976

You may well be right!

JPS29

apt wrote: »

And if people are taking out a variable rate mortgage, but cannot cope with an interest rate of 5% then it is not a question of 'faith ... in the mortgage system', but of overborrowing.

Apt, I think you are making assumptions here. I have not said I cant afford the increase. Again I'll reiterate that I used a very decent whole of market broker who went through affordability plans with me. TBH I can afford it if rates go up to the 10 percent mark. That for me isn't the issue. The issue I am concerned with is contractual obligations and the precident that may be set if Skipton can simply reneg on its guarantee due to small print that has never been used before. I am not saying it is a cut and dry case, and like GG I too can see both sides, but the way this has come about seems unfair IMO.

Also with regards to moving fee free to another mortgage provider. The mortgage market is not exactly booming at the moment and unless you have a massive deposit, plenty of equity, and squeaky clean credit chances are you are stuck with skipton.

sarahbennett

hallmark wrote: »

Savers not being screwed by low interest rates? OK now I know you must be joking. Anyone who can't see how Brown is sacrificing savers in order to save reckless borrorowers either can't or won't understand the first thing about what's happening with our economy

OK now in part I agree with you (although not sure about everyone with a mortgage being a reckless borrower!). It's true the economy is currently an awful environment for savers, who should generally be rewarded for their providence, and there is a tendency to punish rather than reward those who are responsible, who support themselves and develop any kind of reserve, and I agree that this activity should be rewarded by the government and not penalised against... I'm more with you there than you realise...

My issue is with a specific building society that (quite unusually) gave its customers a guarantee (and its guarantee to track base rate on an SVR mortgage was unusual).

This is rather like the Equitable Life case. There is nothing at all exceptional about people going out of business because they cannot honour their guarantees! Or people making stupid promises. It should be obvious to a financial organisation that if their guarantee breaks down at say 2.7% base rate (which Skipton claim it does) that they should have put what they call a "floor" on their agreements, as many lenders do. Interest rates can go up or down, this is not rocket science it is utter incompetence not to have put a floor on these particular agreements.

Whether people can afford an SVR rise in the context of having one of these agreements is neither here nor there. Just in the same way that a saver might be able to afford getting less back on savings mid stream as in the case of Equitable Life. the point that applies to both is that a guarantee is a guarantee, people should not be sold either borrowings or savings fraudulently. If we don't all club together to defend this basic principle rather than see it as a fight between borrowers and savers we will all as consumers end up losing out.

(In Skipton's case they have not promised to pass this, arguably illegal, increase to savers in any event, the only people who benefit are their top managers who are paid enormous sums no matter what the state of the Society's finances, and even if they run it into the ground... never are exceptional circumstances cited to reduce multi-million pound payouts there!)

What I'm saying should in no way be taken to suggest that I think a low base rate is fair on savers it is clearly more fair on borrowers, including reckless borrowers, but this is an issue with the Bank of England, not customers from the Skipton...

Dan_1976

I think we need to stand up to lenders who take advantage of cusumers, but I cant see what Skipton have done wrong. The claus is there and trust me this will continue, so many people are on SVR's which is very risky for a lender. Imaging if 4 or 5 rival lenders go for it, increase target lending. They may gain capital but would lose income and a lot of clients.

Its not as simple, it may be morally wrong, but as we all know finance and morals dont go!

goodchil

Skipton mortgage account holders are outraged at the SVR going up to 4.95% what about poor old northern rock customers on a SVR! The rate northern rock charge is and has never come down any further than 4.79%. God help you if you take out an additional secured loan from them they currently charge 5% on top of this so it comes out at 9.79%. I think Northern Rock should be investigated and a similar class action to take them also to court.

Charterhouse

Nationwide didn't leave themselves an exceptional circs clause. Skipton did. 0.5% interest rates are exceptional. Case closed. See we can save all those lawyer fees really easily...

sarahbennett

There is a clause there, but the jury is still out on whether or not:

(a) it is an unfair contract term (as it was drafted by Skipton without any input from the customer, unfair contracts legislation suggests a term such as this must be interpreted in the interests of the party who did not draw up the contract),

(b) it is miss-selling to offer a guarantee, to tell customers that to protect them from all the hikes in base rate, and enable them to benefit from any falls, the payment they make shall never be more than 3% above the base rate.

(c) it is reasonable to neglect to mention, yet expect the customer to be aware, that there are some falls in base rate from which they can't benefit, in the context of an environment in which lenders who wish to protect themselves from this (very foreseeable) eventuality routinely put a "floor" on mortgages, or a "ceiling" on saver interest rates

(d) the circumstances really are all that exceptional, for example, decisions were made to purchase an unprofitable failing building society with a massive impact on profits, whether 3% above base rate is even the best of the bunch in terms of deals, a number of lenders are able to maintain guarantees of as little as 1.5% above libor or base rate, whether bad press as a result of incompetance such as accidentally telling thousands of savers what money was in the accounts of other savers, and the large payments to executive management (that continue to be made), had more to do with Skipton's demise.

Incidentally on the subject of large bonuses a lot of people say that they are standard in the industry, might that not have something to do with the industry's demise? ... And why are they still, in the light of this, being paid out? We certainly don't have brain surgeons running the financial industry in the UK. If other countries want them they are more than welcome. I'm not convinced we'd be in this mess if accountants with modest salaries and a little bit of common sense (as well as time spent away from the golf courses) had been put in charge.

I haven't read the Nationwide contract but I would really like to, please if anyone has a copy would you kindly get in touch?

sarahbennett

Charterhouse wrote: »

0.5% interest rates are exceptional. Case closed. See we can save all those lawyer fees really easily...

Some people will say 0.5% bank interest rates are exceptional, but they have been almost 0% in Japan for nearly 15 years, and, in many other countries, including the US and France, the rates are well under what Skipton have defined as an exceptional "2.7%". Have they not heard of these countries? Could they have not thought a possibility exists, where the BoE and not government decides base rates (a relatively recent development), that in this context interest rates might go down?

Could they not have considered the routine industry practice to put a "floor" or "ceiling" on contracts tracking interest rates at which their guarantees (be to it to savers or borrowers) would fail?

Further, many things in life are exceptional. I had cereal for breakfast today. That is exceptional, because I normally have toast, but I don't expect interest rates to go up because of it. I don't accept, in the context of a base rate tracker that any specific level of base rate can constitute "exceptional circumstances" enabling guarantee revocation (even if it could be seen as exceptional in another context), because this is such a counter intuitive and circular argument. I would expect, as many others seem to, a different type of circumstance altogether.

As for lawyer fees, nobody has been asked for any yet ("no win no fee"). Fees will be recovered from the Society in the event the consumers win. Now a firm willing to take on such a risk for a case they are certain to lose, this would be very odd indeed...

sarahbennett

apt wrote: »

If Skipton's board and management think the society's finances are unsustainable then it would be irresponsible of them not to act.

Absolutely agree with this comment. They should immediately create and put in place a recovery plan. If convinced they are unable to make any plan work that would enable them to honor their commitments they should declare themselves insolvent.

You might say that putting a catch-all get-out clause in contracts (the meaning of which they can change at their discretion at any time) is their means of being responsible, to protect themselves in precisely such a scenario, or any other unexpected scenario. Is that what you are saying?