"Scottish Widows Bank" base rate?

BanksSmanks

Hi everyone,

My mortgage application has recently hit a problem that I thought was sufficiently worrying to make me pull out of it, and interesting enough to post here. See what you make of it.

Using the London & County (L&C) mortgage broken I was recommended an 'exclusive' deal (so not available direct) of a lifetime 0.39% flexible and offsettable tracker from Scottish Widows (SW). It sounded good.

When I received the key facts illustration (KFI) I noticed that the rate it tracked was not the BoE base rate as described, but a "Scottish Widows Bank base rate". I queried this with L&C and asked them what the difference was. "None!", I was told. And sure enough, there are other mortgage lenders out there that do similar things: The woolwich trackers are linked to Barclays Bank base rate for instance.

So I continued with the application. Further down the line I was asked to sign a declaration for SW that stated:

The rate of interest and monthly payment for any mortgage granted may be varied from time to time.

Now, that doesn't sound like a mortgage that tracks the BoE base rate! It should vary with the BoE base rate, but surely SW should not be able to adjust it? Otherwise it's not tracking the BoE!

So, I asked SW what was going on, and asked them (instead of L&C) what the difference between their 'base rate' and the BoE base rate. I was informed that:

At the moment Scottish Widows Bank's base rate is the same as the Bank of England Base Rate however I cannot confirm whether or not it will divert from the Bank of England Base rate at any point in the future

I was quite shocked by this. After a bit of digging about it appears that some banks, such as Barclays, do have their own bank rate - but the key difference is that they are clearing banks. As I understand it, they do business with the BoE on a regular basis and the competition would clean them up if they ever deviated from the actual BoE base rate. So they are most likely as good as the BoE base rate.

But of course, Scottish Widows is not a clearing bank. In fact, they aren't even a bank. So what is "Scottish Widows Bank" base rate? As far as I can work out, it's essentially made up but has (I'm informed by L&C) matched the BoE base rate for the last 7 years - but with no guarantee that it will continue to do so.

I want the security of a BoE tracker so for me, this was enough to disade me from the mortgage, but I've come away feeling as if the mortgage was completely mis-sold to me by L&C. They completely failed to explain key details of the tracker, and will continue to recommend the tracker without ensuring their clients understand the difference. So I'm afraid I cannot really recommend them.

Well, there's enough there for a decent conspiracy! Why on earth don't SW just start tracking the BoE? Would you risk "SW bank" base rate?

homer_j_3

The broker should have explained this to you, you are right.

What are the tie-ins with the product? Could you easily switch on to something else if SW decided to deviate from the BOE?

herbiesjp

It sounds like you have been doing your homework really well.

Sometimes lenders deliberately price themselves out of the market, to keep business low, but profitable, so whilst you are right about the Barclays scheme et al, it may be a move they make to price themselves out of the market. Personally I think they would just bring out new deals i.e instead of 0,05% above BoE they will go to 0.15% above BoE.

But stranger things have happened - who would have though NR would be in this trouble at the beginning of the year

BanksSmanks

What are the tie-ins with the product? Could you easily switch on to something else if SW decided to deviate from the BOE?

There's a £200 redemption fee but no early repayment charges or tie-in period, which is pretty good. However, the main selling point of the mortgage is that it's a reliable term tracker. You pay a bit more per-month for the benefit of the extra flexibility and get to skip the cost of continually remortgaging. If I potentially have to remortgage then it starts to loose that attraction (and I'd just like to avoid being on the end of any aggressive fund raising).

Incidentally - but not really a factor in my decision - but I believe SW were a large investor in Northern Rock, although I don't have the sources to confirm this. Should be possible to confirm though a bit of investigation though.

The main thing that annoys me is how god damn deceptive the whole thing appears. How many people do you know that would understand the difference between BoE base rate, Barclays base rate and "Scottish Widows Bank" base rate? Surely that's not an honest sell!

toonfish

Coventry do exactly the same

gemma.zhang

I want to ask the same question as well.. Anybody can give me clear explaination of it !!!?? ..

I got a tracker mortgage with NatWest, they have NatWest Bank Base Rate... I keep asking if it is the same as BoE Base Rate.. talked to their staff on the phone, in the branch !!! .. They just can't explain to me the difference, and keep saying. it's the same same same.

It's really frustrating me !!! ...

Anybody can give me clear answer of it !!??

herbiesjp

Ask them to put it in writing that it will not change from tracking the BoE base rate.

BanksSmanks

I got a tracker mortgage with NatWest, they have NatWest Bank Base Rate... I keep asking if it is the same as BoE Base Rate..

Strictly speaking it is their own rate - but, NatWest is a Clearing Bank. My knowledge on this is pretty weak, but as far as I understand it, Clearing Banks are members of the "Credit and Cheque Clearing Company" (CCCC) and as members do business with the Bank of England itself. If a Clearing Bank's base rate was to ever deviate from the BoE base rate they would be a great disadvantage to their competitors. So it's really not in their interest to allow it to deviate and historically they have stuck to the BoE rate.

I found a handy glossary of terms here: http://www.competition-commission.gov.uk/rep_pub/reports/2002/fulltext/462glossary.pdf
And a list of what banks are part of the system here: http://www.competition-commission.org.uk/rep_pub/reports/2002/fulltext/462a3.1.pdf

Coventry are a building society, and (according to the document above) are not part of the current clearing system. However, on their website they do seem to track the BoE rate? (http://www.coventrybuildingsociety.co.uk/mortgages/AccountSummary.aspx?Socseqno=1&PCode=TKZ13).

Scottish Widows are sadly just fund managers.

gemma.zhang

Thank you very much for your information, has been great helpful.

'historically they have stuck to the BoE rate' -
is there any data/archive, it actually shows historically, they have the same data !!??

Thanks.