Mortgage Lenders Move The Goalposts

HAMISH_MCTAVISH

Home owners are facing unexpected mortgage rate rises as lenders exploit loopholes in original contracts.

Home owners should be carefully scrutinising their original mortgage offers for nasty surprises that could push up monthly payments. Experts have warned that lenders are going through previous mortgage contracts with a fine-tooth comb, looking for any legal ways to push up interest rates for those on cheap tracker mortgages or standard variable rates.

The article goes on to talk about the cases already reported here on numerous occasions, like Skipton and Manchester.

This is interesting though....

experts warned that it was part of an increasing trend among mortgage companies to try to squeeze more profit from their existing customers by raising rates.

Really?

Bankers trying to squeeze their customers for bigger profits?

Who'd have thought it.....

Wonder why they'd do that?

most lenders had assumed that mortgage rates would be higher by now, but the crisis in the eurozone meant that the current low-rate environment would drag on for many years. "Lenders are going to do everything they can to push up rates," he said. "They never cease to surprise in the ways they find to treat customers unfairly."

Ahhhhh. That's why.

However, there is some reassurance for mortgage holders.

Mr Boulger said customers should check their mortgage offer documents very carefully, especially if they were advised about changes to their SVR or tracker.

If your mortgage company wanted to invoke a clause in your contract it should be in the "key facts illustration" (KFI), not in the general small print of the mortgage contract.

If it is not in the KFI, Mr Boulger said, there is precedent that the change will not be allowed.

So basically, forget the loopholes in the small print.

If the banks right to change the terms is not clearly laid out in the Key Facts Illustration, it's unlikely any such change would be legal.

I rather suspect this is why most of the big banks have not been able to change their trackers and SVR's, as it's my understanding that most of them did not insert a right to change tracker or SVR terms in the KFI.

Also of note, even if the lender has included their right to change the rate in the KFI, any change has to be proportional.

He cited a recent case from the Cheshire Mortgage Corporation (CMC), where the FSA found that a contract term was unfair and asked the lender to change it. T

he term had allowed CMC to change the interest rate at any time for any reason. "We thought the term was too wide and was unfair because the firm's power was unrestricted," the FSA said.

CMC has changed its term to say: "Where the interest rate on your mortgage is variable, we may vary the interest rate at any time. However, we will only vary the interest rate to respond proportionately to changes in our funding costs."

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9216995/Mortgage-lenders-move-the-goal-posts.html

Generali

Never trust any financial institution under any circumstances

Most people that work in management in banks are amoral. Most of the rest are sociopaths IME.

I should know.

Wookster

Generali wrote: »

Most people that work in management in banks are amoral. Most of the rest are sociopaths IME.

Have you seen BBC Horizon: Are You Good or Evil?
http://www.bbc.co.uk/programmes/b014kj65

There's a rather interesting section on people who work in so called 'charismatic leaders.' I guess folks like Blair, Hitler, Clinton, Goodwin, !!!!!! Fuld etc would broadly fit into the category they are talking about.

michaels

I guess the big unknown is what it does cost a bank to fund a mortgage and how this varies with changes in the ltv.

If you think about it a 90% ltv is a 70% plus a 20% - if the rate available on a 70% ltv is base plus 2% and for a 90% is base plus 5% that makes the final 20% tranche incredibly expensive (15.5%:eek: by my calcs) and probably much more expensive than an unsecured personal loan....

HAMISH_MCTAVISH

michaels wrote: »

I guess the big unknown is what it does cost a bank to fund a mortgage and how this varies with changes in the ltv.

If you think about it a 90% ltv is a 70% plus a 20% - if the rate available on a 70% ltv is base plus 2% and for a 90% is base plus 5% that makes the final 20% tranche incredibly expensive (15.5%:eek: by my calcs) and probably much more expensive than an unsecured personal loan....

It's not the direct cost of funding though, it's the change in capital withholding requirements.

Banks are massively overcharging to compensate for not being able to lend out the multiple of that money elsewhere.

HAMISH_MCTAVISH

I suspect a fairly big consumer fightback would be on the way if the major lenders tried it on...

But as most of them did include the tracker/SVR terms in the KFI docs, and did not include their get out clauses in the KFI docs, I doubt they'll be stupid enough to attempt it.

Thrugelmir

michaels wrote: »

I guess the big unknown is what it does cost a bank to fund a mortgage and how this varies with changes in the ltv.

Higher LTV requires the lender to hold more capital. So higher interest rate has to be charged to the borrower to reflect.

This is before any risk premium is factored in on very high LTV.

In the past MIG's (Mortgage Indemnity Guarantees) were charged. These were one off premiums charged to the borrowers mortgage account. Rate charged was 5% of the excess over 75% LTV.

So a 90k mortgage on a £100k property would cost £750 for example.

macaque_2

The assumption in the OP is that financial organisations are expected to play fair and ethically. They never do and nor do governments. Whilst the bulls might feel agrieved by the banks' manipulation of the small print (which falls little short of cheating) they should also remember that they themselves have benefited from unfair subsidies in the form of QE and artificially low interest rates.

HAMISH_MCTAVISH

macaque wrote: »

The assumption in the OP is that financial organisations are expected to play fair and ethically. .

No, I think it's fair to say we expect them to try and do the opposite.

Being a bunch of crooked scumbags and all.

However the article does point out it's far from a one way street and many of them will simply not be able to unilaterally change rates in the absence of the BOE raising rates.

I rather suspect that most of those that can, now already have.

pqrdef

michaels wrote: »

that makes the final 20% tranche incredibly expensive (15.5%:eek: by my calcs) and probably much more expensive than an unsecured personal loan....

Which is basically what it is. But unsecured personal loans don't usually have a 20-25 year term. An unsecured personal loan stretching that far into the unforeseeable future is basically a piece of junk, whose value on the balance sheet should be negligible.

shortchanged_2

Time for another index Hamish.

How about the ar*e twitching index?