Hollow victory against Skipton building society?
For those of us currently riding the standard variable rate (SVR) gamble, the recent news that inflation fell last month is good news, as lower inflation means that interest rates are less likely to go up. Or at least not right now. This means that we can continue to benefit from paying less while interest rates are low, knowing our rate won’t go over our lender’s capped add-on percentage. Um.
The Skipton case involved precisely that scenario- its cap stated the SVR would never be more than 3 percentage points above the bank base rate. Therefore, when the base rate fell to 0.5% in March 2009, mortgage customers understandably believed the rate they would pay would be no more than 3.5%.
However, on 1 March 2010, Skipton dredged up an “exceptional circumstances” clause, which was included in its contracts, to increase the SVR to 4.95% for about 65,000 unlucky borrowers.
One such borrower decided this was not only not cricket, it was an entirely different ballgame and refused to pay the additional £122 a month on his £148,000 mortgage caused by this unfair, but sadly permissible rate rise, and threatened legal action against Skipton.
The case has now, apparently, been settled out-of-court, with Skipton waiving the customer’s non-payment fees of £500 and allowing him to transfer to an interest-only mortgage, despite him being in negative equity and not having the standard 25% equity normally required.
However, Skipton have not backed down on the SVR increase one iota and the customer has now agreed to pay the increased interest.
Some papers are reporting this as a victory for people power, but other than the interest-only concession, the complainant is not going to be better off financially, and indeed, given the likely legal costs incurred so far, he is probably more than £122 a month worse off for his troubles.
And the proverbial bandwagon is also suffering from a distinct lack of jumping upon. The law firm which has been advising the claimant has reportedly set up a Skipton Action Group to drum up support for a test case against the building society in the High Court. The firm, possibly looking for an American-style class action was after a thousands of customers to enable it to start proceedings, but so far fewer than 100 have signed up.
So what does this mean for you? Well, in simple terms it means that any ‘guarantee’ your lender gives you that your SVR will not increase over a stated cap is about as sturdy as a chocolate teapot. It also has implications for Tracker mortgages- if your lender has a similar exceptional circumstances* clause, then they are essentially not bound to keep to the tracker rate which is the main feature of a Tracker mortgage. And a quick look at some of the main lenders’ websites suggests that it’s not exactly easy to find details of the terms and conditions before you apply.
So the moral of this story is to make sure you read the small print before you sign on the dotted line...
*or a we-want-to-change-our-mind-if-it-saves-you-too-much-money clause