Can a mortgage withdraw bank base rate guarantee just like that ?

jk38

Hi,

I've received a letter from mortgage company (Manchester Building Society) this morning telling me they are withdrawing bank base rate guarantee - can they do that ?

I currently pay 1% over the bank base rate BBR so 1.5% but as the letter states this isn't making them much money, so they are giving me notice that they are changing it to be 1% under their standard variable rate SVR in 12 months time than 0.75% under 12 months after that

Their current SVR is 5.49%

As they will be setting their own percentage of SVR this basically gives them a free hand to set SVR at what they like and thus charge what mortgage percentage they like doesn't it ?

As I signed up to a BBR plus 1% - can they just make a major change like this ?

shortchanged_2

This sounds similar to what the Skipton did. You will probably find they are doing it under some so called extreme circumstances clause.

Personally I would say it is breach of contract and would get some legal advice.

Thrugelmir

shortchanged wrote: »

This sounds similar to what the Skipton did. You will probably find they are doing it under some so called extreme circumstances clause.

Personally I would say it is breach of contract and would get some legal advice.

Every mortgage contract contract contains an exceptional circumstances clause. As no one foresaw the BOE reducing the base rate to such a low level for so long.

The reason the Skipton BS were able to break their guarantee was for commercial reasons. As they would have ended up running at a loss. If this situation had arisen then depositors may well have started to withdraw their money en masse. Causing a NR style collapse.

The FSA will back the lenders if there is commercial grounds for altering lending rates. Seems fairer to spread the cost over all borrowers then targeting a specific group.

Lenders are now having to compete for retail deposits to fund their mortgage books. As the wholesale money markets are drying up for the larger lenders. Which is driving up the cost of funding for mortgages.

shortchanged_2

Is this what we call a 'free market' then?

I'm sorry but I don't agree Thrugelmir. For me it is nothing more than an unfair term of contract because it favours one party over the other. As I've stated before can the consumer turn around and say to the mortgage company 'I'm capping my interest rate at 7% now the base rate has gone up to 6% and above?'

By the way I'm not saying what you're saying isn't correct Thrugelmir, just that I believe it is wrong.

Thrugelmir

shortchanged wrote: »

For me it is nothing more than an unfair term of contract because it favours one party over the other.

From my experience people rarely read contracts or seek professional advice before signing them.

Gromitt

Would something like this allow a customer to withdraw from the contract early without termination charges? Ie, like when a credit card issuer hikes up your rate and you can object to the new rate?

If the customer can go elsewhere, then I don't see much wrong with it, but if they are basically saying "We are changing your rate from 1.5% to 4.5%, and there's nothing you can do about until your 5 year period has ended", it would indeed seem a little unfair.

Thrugelmir

Gromitt wrote: »

Would something like this allow a customer to withdraw from the contract early without termination charges? Ie, like when a credit card issuer hikes up your rate and you can object to the new rate?

If the customer can go elsewhere, then I don't see much wrong with it, but if they are basically saying "We are changing your rate from 1.5% to 4.5%, and there's nothing you can do about until your 5 year period has ended", it would indeed seem a little unfair.

12 months is a reasonable period for a borrower to consider their options.

jk38

I think what I feel is wrong, is that I signed up for a BBR plus 1% (yes I read the contract) and in doing so took the chance that the BBR would stay at a 'reasonable' percentage....it hasn't always been low...... and believe me they made plenty from me when the rates were high over the years

When the BBR increased I had to accept that it was 'tough luck' on me and no way could I say "I'm paying you too much now, so in 12 month's time I'm moving to JVR (john's variable rate)....ooooh I don't know....let's call it 0.5%...yes that seems enough to me" .

Now the BBR hasn't gone in their favour, they are saying they're just not making enough so they're introducing a new datum rate (which I didn't sign up for, nor would I of)

Yes I know it's their money and I am lending it from them - but I did so based on a given a set of circumstances which because they now aren't making so much they are moving the goalposts

Can they do that legally ? Can they just change the yard stick like that is what I'm looking to have answered?

foreversummer

I too think it is extremely unfair and I don't recall any bank/building society lowering rates when rates hit 15% back in the nineties on the grounds they were making too much money.

I expect Thruglemir is right and there is a clause somewhere in your contract that gives them the right to do this, but I would not give up without a fight and I'm sure over the coming days and weeks there will be others coming to this board and on the internet generally protesting. There is strength in numbers. Good luck.

Foreversummer

Thrugelmir

jk38 wrote: »

Yes I know it's their money and I lent it from them - but I did so based on a given a set of circumstances which because they now aren't making so much they are moving the goalposts

You also have to consider that they need to borrow the money themselves to fund your mortgage. If savers don't deposit. Then there isn't the money to lend. To attract savers then competitive rates of interest have to be offered. This is reflected in the cost of mortgages to borrowers.

shortchanged_2

Thrugelmir wrote: »

From my experience people rarely read contracts or seek professional advice before signing them.

But the problem is Thrugelmir with these exceptional circumstances clauses is that the banks/building socities hold all the aces.