MSE News: Skipton faces legal challenge over mortgage rate hike

MSE_Martin

For me this is a difficult argument - and I accept perhaps my quote was a little too strong.

However my focus was on the legitimate expectation of people getting a mortgage deal.

If you are given a guarantee on your mortgage you should be able to rely on that - a small print opt out clause isn't a guarantee. And it is important we get a deal of surety and long term planning when it comes to finances.

Normally this is symptomatic of the whole SVR set up - you are reliant on the vagaries and willy-nilly moves of the mortgage lender. Yet here people believed they has some form of protective constraint imposed on that by a rate guarantee.

That lack of surety and the massively increased difficulty of remortgaging means people don't have an opt out clause of this deal - for anyone with an LTV over 75% there is virtually no opt out.

Add to that the fact it was phased in not gradually, not over time but with an enormous increase (one of the biggest I've ever seen in proportionately in a time when rates aren't moving).

Martin

captainhaggis

Dan_1976 wrote: »

As you say George the claus is in the contract and for all to see. It is there to protect the society in this type of situation.

If it was the other way around the borrower could invoke a clause pulling rates down in strange or unusual times we would be banging the consumer drum.

I agree its unfair but thats business.

The clause is a crafty, sneaky, dishonest piece of small print buried deep within page after page of legal and financial jargon most of us wouldn't really understand. It's not unusual that a lot of Joe Publics have either missed it or misunderstood it.

That a lender can tell you on one piece of paper that you'll go on a rate of XX.XX% above BoEBR and on another throw in a clause saying that, if they find themselves struggling they can throw that rate up at will, is completely unacceptable and not what I consider open and honest trading.

Savers have had it good for a while with some extremely attractive savings rates on offer.... Now it's the turn of the borrower - and we're not talking about frivolous borrowers here, more people who have borrowed to put a roof over their head - to benefit, albeit slightly.

Your time will come, again, when you'll get a very favourable return on your savings. And the mortgage borrower will find themselves struggling to keep on top of their payments.

It's swings and round-a-bouts. Get over it.

captainhaggis

MSE_Martin wrote: »

For me this is a difficult argument - and I accept perhaps my quote was a little too strong.

However my focus was on the legitimate expectation of people getting a mortgage deal.

If you are given a guarantee on your mortgage you should be able to rely on that - a small print opt out clause isn't a guarantee. And it is important we get a deal of surety and long term planning when it comes to finances.

Normally this is symptomatic of the whole SVR set up - you are reliant on the vagaries and willy-nilly moves of the mortgage lender. Yet here people believed they has some form of protective constraint imposed on that by a rate guarantee.

That lack of surety and the massively increased difficulty of remortgaging means people don't have an opt out clause of this deal - for anyone with an LTV over 75% there is virtually no opt out.

Add to that the fact it was phased in not gradually, not over time but with an enormous increase (one of the biggest I've ever seen in proportionately in a time when rates aren't moving).

Martin

Good evening, Martin.

Is this case something you - by you I mean MSE - intend on throwing all your weight behind? You're all for consumer rights and I don't believe consumers are being treated fairly here at all. Two pieces of paper saying different things - one glaringly obvious, the other (the less favourable) buried deep in a mess of legal jargon and small print.

I'm not impacted by these Skipton changes at all, but I feel for those who are. I think this is one of the most dishonest practices I've ever seen perpetrated by a lender.

Paulgonnabedebtfree

Gorgeous_George wrote: »

I know what you mean.

The problem as I see it is that the smaller societies would need to implement rates so high for new borrowers that they would be uncompetitive and wouldn't attract new borrowers. Lower their rates and they fail to attract savers. a classic Catch 22 situation.

The ONLY way out is to hit all current customers a bit. It seems unfair but the alternative is for the society to go bankrupt and for the receivers to subsequently 'call in' all the mortgages.

GG

Of course, another way out is for Skipton to be insolvent. If they can't honour their contracts then maybe they should be looking in that direction. Anyone who can't pay their new mortgage rates may have to do that (and probably become destitute into the bargain) so I reckon Skipton should take the hit themselves. If they bleat loud enough maybe they'll get bailed out too like the banks did.
I see from another post that they have links with Amber. This is the company that sold my mortgage to its kindred spirit called Redstone. I understand my mortgage to be a lifelong tracker (3 monthly LIBOR + 2%). Not a great rate I grant you but some sort of guarantee nevertheless. I will be scanning their small print over the next few days in the hope that a similar clause doesn't exist in my deal. Perhaps there isn't as they are always guaranteed their 2% markup because I imagine the LIBOR rate is what they borrow on.

sarahbennett

captainhaggis wrote: »

That a lender can tell you on one piece of paper that you'll go on a rate of XX.XX% above BoEBR and on another throw in a clause saying that, if they find themselves struggling they can throw that rate up at will, is completely unacceptable and not what I consider open and honest trading.

Exceptional Circumstances

The worst thing was that this clause phrased "only in exceptional circumstances" does not even hint these circumstances might include the lender finding themselves struggling. Familiar with the scant amount of case law referring to exceptional circumstances in lender-borrower agreements, I am aware exceptional circumstances have never been shown to refer to "the usual circumstances of debt and improvidence" (ie., the financial situation of either party), nor the extent of a usual circumstance (such as an interest rate) "no matter how severe" but must refer to "a different type of circumstance altogether." (see Barca v Mears 2004). Even if the term were on the front page and underlined, you still would not expect it to be invoked in the kind of circumstances Skipton are referring to ("a base rate of 2.7% or below" or their own financial position).

Mis-selling

In the context of common practice to put a floor or a ceiling on BBRs at which any guarantees would not be honored, if the product does not have a floor on the BBR one would further not expect such a floor to be later introduced, making it a different type of agreement altogether (ie., one that has a floor).

Unfair Contract

Having been drafted by a lender with no input from the consumer, unfair contracts law dictates that in cases of uncertainty as to the meaning of a term or how it might be applied, that term must be interpreted to the benefit of the consumer. This is why you notice in many contracts detail normally follows such a term to protect the person who drafted the contract by ensuring there is as much clarity as possible in it (eg. "a valid reason may include x, y, and z etc.")

Summary

In this case, the overall impression is of a guarantee, the word "guarantee" is repeated in the contract. There is not even a hint of any plan to use "exceptional circumstances" any differently to how courts have previously interpreted it (ie., that it might include if the lender were struggling), nor, given the scant amount of case law and onus on them to clarify a term they had drafted (in accordance with unfair contracts principles, that unilateral get-out catch all terms are unenforceable) is there any hint as to what kind of circumstance they might consider exceptional.

So I just wanted to clarify that the clause did not say that if they found themselves struggling they can throw that rate up at will, far from it...

sarahbennett

Gorgeous_George wrote: »

The alternative is for the society to go bankrupt and for the receivers to subsequently 'call in' all the mortgages.

Yes. That sounds reasonable in the context. It's what happens in business when you are unable to honour your agreements...

Gorgeous_George wrote: »

The ONLY way out is to hit all current customers a bit.

Are you saying that it is acceptable to defraud all the current customers with guarantees on their borrowing or savings rates "a bit."? (incidentally I question whether "a bit" is a hike in one month of 1.45% amounting to an increase of over 40% in monthly payments)

sarahbennett

MSE_Martin wrote: »

For me this is a difficult argument - and I accept perhaps my quote was a little too strong.

Given the quotes of other journalists, eg., the Personal Finance Editor of the Financial Mail wrote a story entitled: "You just Can't Trust Skipton, So Get Out", Which? chief executive, Peter Vicary-Smith: “we can't see any justification for this unexpected hike in Skipton's SVR" etc. etc., I'd call your quote quite modest :-)

MSE_Martin wrote: »

Normally this is symptomatic of the whole SVR set up - you are reliant on the vagaries and willy-nilly moves of the mortgage lender. Yet here people believed they has some form of protective constraint imposed on that by a rate guarantee.

I could not agree more

MSE_Martin wrote: »

That lack of surety and the massively increased difficulty of remortgaging means people don't have an opt out clause of this deal - for anyone with an LTV over 75% there is virtually no opt out.

This is a very important point, while the law requires that somone must be able to freely leave a contract without penalty there is also recognition this is not possible for certain types of contract, such as those that are long and involve a large commitment and where there are very limited options of suppliar to move to.

MSE_Martin wrote: »

Add to that the fact it was phased in not gradually, not over time but with an enormous increase (one of the biggest I've ever seen in proportionately in a time when rates aren't moving). Martin

And there is nothing, having reneged on their promise, to prevent Skipton making further rises. For people unable to move to other products why not make it 10%, 20%, hell 150%? (a natural consequence of those with a choice moving, will be further rate rises for those who do not have such an option). If they really can invoke this clause to raise their rate as they so wish, it could be a nice little earner...

sarahbennett

I didn't know where these points should go in terms of this general discussion so I have added them here.

(1) In unfair contracts legislation where a term is drafted by the other party without being clearly defined it is the most favourable interpretation to the consumer that will prevail. I wonder how this may be demonstrated? presumably research can be conducted that demonstrates a range of different consumer interpretations to work out which is the most favourable? The most common? I started to gather a bit of research myself, by showing people the agreement in the street and pub...

Consumer Interpretations of the Clause...
One interpreted "exceptional circumstances" referred to the Society's general right to vary their rates for people who had not been given a guarantee (ie., "the exceptional circumstances"). A common perception was it was referring to an altogether different type of circumstance. It did not occur to anyone the circumstances might include either the debtor or the lender being unable to honour their side because they are struggling.

(2) In law, a term may be clarified, but its meaning cannot later be altered...

Making it up as they go along...
The base rate dropped to a level the society considered "exceptional circumstances" in 2008. Nobody was told they were already in exceptional circumstances when sold mortgages since 2008 so the guarantee would not apply. Nor was anyone who had a mortgage informed of this since that date. The fact they left it a bit late to mention exceptional circumstances "prevail" (which in itself seems a contradition to me in that if a circumstance prevails it can't be regarded as exceptional) and they still think they can further define other exceptional circumstances, means they think they have an absolute unilateral right to make the rules up as they go along.

(3) I can see how some people are sharp when it comes to their finances, and I think they may have much to contribute in terms of setting an example to others but some posts can come across as judgemental, and it may be too easy to forget everyone participating on MSE is making a responsible decision to consider their situation and receive input from others on the most prudent way to act. I think we are all connected by certain common interests, one of which is to get an honest deal from anyone with which we have a transaction of any kind...

It is natural to want a good deal for yourself, but I hope everyone here has the ethics to recognise that nobody is above the law.

Above the law...
When BBRs are low borrowers have it easier in general, and savers get a rough deal. So often we get into a tit for tat, thinking the other party is having a better deal. This I feel divides and damages a community that seeks to always be a valuable resource for others, whatever the prevailing circumstances in terms of government or the economy are.

Skipton appears to hold both its borrowers and its savers in contempt, and appears to consider itself above the law by attempting to change the terms and conditions of its agreements mid flow. Before the larger rate drop at the end of December 2008, Skipton offered an ISA package that allowed transfers in from other ISAs. Apparently they gave no time limit on the transfers in and did not state that these had to be made on the same day as opening the account, or that they had to be made while the ISA offer was still open to new savers. But when they realised they might lose some money, they changed their minds...

http://forums.moneysavingexpert.com/showthread.html?t=1069987

Dan_1976

You just can't trust any lender that has this in mortgage contracts!

I agree this is wrong and unfair, but if Skipton goes pop will the Government have the funds to bail them and the savers out?

As a tax payer I would rather people pay a higher, but still very low, rate than pay millions of our money in to another broken lender!

sarahbennett

Dan_1976 wrote: »

As a tax payer I would rather people pay a higher, but still very low, rate than pay millions of our money in to another broken lender!

How about the other option of the government just paying the guaranteed amounts to the savers and letting the lender go broke? It's only a small organisation compared to any that were bailed out, and I don't think its demise would be of much consequence.

When you say people "should" pay a higher rate, I'm sure you appreciate there is no legal way Skipton can force borrowers to pay the rate you think they should, it would then be a case of the lender taking the law into their own hands.

One way to make such a change lawfully might be (although there is no precedent for this of which I am aware) for the government to decree that all Skipton customers must foot the bill to x amount compulsarily because of a change in the law. This may at least have the added protection of enabling government to also dictate that Skipton executives have to take a hit (so no multi-million pensions or salaries irrespective of what is in their contracts), and ensure the borrowers really are protected by setting a maximum on the amount Skipton can raise its SVR on them by, that should to be fair be equal to the amount that savers have their interest rates reduced by mid flow (those who are in tied in contracts with a likewise guaranteed rate whereby they would not receive any interest if they withdrew their funds would probably likewise not be left with any choice).