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Law firm investigates legality of Skipton SVR clause

A London-based solicitor firm, which has previously set up action groups against Bradford & Bingley and the Royal Bank of Scotland, is investigating the legality of a clause in Skipton Building Society’s mortgage contract that allowed the lender to hike its SVR to 4.95%.

It was revealed last month that Skipton was temporarily removing the ceiling on its SVR which promised borrowers that their revert rate would not go over 3% above the Bank of England base rate.

With effect from March 1 the building society is bringing in a new SVR at 4.95%, which the building society says is in response to “exceptional market conditions.”

Skipton has defined exceptional market conditions as where the base rate is less than or equal to 2.7%, or where the base rate minus the average savings rate is less than or equal to 2.5% for three months.

Leon Kaye Solicitors has published a statement on its website claiming that clauses such as these are in breach of the Unfair Contract Terms Act 1977.

The firm says that Skipton’s decision forces borrowers to pay early repayment charges, and pushes up mortgage payments for those borrowers who cannot remortgage.

The statement on Leon Kaye’s website says: “We are currently investigating the legality of Skipton’s decision to not honour the guaranteed rate and whether the downturn in the economy would warrant a trigger of the “exceptional circumstances” clause pursuant to the terms of the mortgage contracts.

“Furthermore we are investigating borrowers rights regarding these clauses under the Unfair Contract Terms Act 1977 with a view to establishing whether borrowers have a claim against Skipton.”

It is asking Skipton borrowers affected by the SVR decision to get in touch with the firm directly.

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  • Jon 19th February 2010 at 2:43 pm

    1) It can be assumed by Skipton having to use this clause that they would lose money if they carried on with the SVR cap above BBR in the current market conditions.
    2) BBR does not have any relevance to the cost of funds for Building Societies.
    3) Should brokers have been aware of this clause – perhaps Skipton should have published it more – and explained it to clients in the same way that IFAs explain growth rates on investment products.
    4) Is the preference for the Skipton to maintain the BBR cap and be forced into a position where it is taken over

  • Grey Haired Underwriter 19th February 2010 at 2:13 pm

    Can some of you brokers start waking up to the facts of life? The Government hasn’t had to bail out the mutual sector (other than the Dunfermline) and it is now aggressively competing for retail funds via National Savings, Northern Rock et al and in the sector that was traditionally the realm of the Mutual. It didn’t give anything other than the large Building Societies access to the special liquidity scheme and its ill conceived bail outs of certain banks landed the Mutuals with a higher pro rata share of the FSCS.

    Nobody objects to fair competition but this government has seemingly set out to either destroy the mutual sector or to ensure that there are far fewer Building Societies going forward. Some of you are having your moan about TCF but isn’t it a shame that instead of treating Building Societies fairly the Government continues to make it harder and harder for them to just survive. Not only that but I wonder how you will feel when you are left with just the big boys having a cosy cartel in the mortgage market. Mutuality has provided you either directly or indirectly with a damn good income for a long time and has helped kept the big boys ‘honest’. Be careful what you wish for.

    And as for the Solicitor pursuing the Skipton – I wonder what’s in it for them or are they just doing it out of the kindness of their hearts………………..!

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  • sefe 19th February 2010 at 10:05 am

    Without getting into this specific lender. Do any of you honestly want low SVR to continue? Do you not all have large numbers of clients sat on such deals with various lenders? The only way the remo market is really going to get a boost is to force people to get off SVR.

  • ian camp 19th February 2010 at 9:26 am

    It is in this area that the FSA and the OFT should be working closely together. The Unfair Contracts Clause is meant to ensure that one party in a contract cannot take advantage of the other party – where the change would materially afect one party to the detriment of the other. There are numerous occasions where this is happening – variable rate clauses in contracts where there has been no downside movement since base rates have fallen from 5% to 0.5% – credit card contracts where the rates have gone up despite the 90% downside movement of Base Rates.
    It clearly gives the impression that the OFT/FSA are incapable of regulating and policing the industry effectively against all sizes of organisations, merely chasing soft options of a transgressing minor intermediary to show their strength.
    The lack of application of the intent of the Unfair Contracts Clause by major lenders and the OFT/FSA passive acceptance of their attitude is highly illustrative of the unfair legal world we now live in.

  • sarah smith 19th February 2010 at 8:38 am

    Don’t you think Skipton would have already done this? I very much doubt this firm will be successful and even if there is a small chance they are, it won’t mean that the SVR changes. It will just mean a protractd law suit, which by the time its over, interest rates would have risen anyway.

  • peter sowerby 18th February 2010 at 9:39 pm

    to Anonymous 5.18pm – Brokers will support lenders who don’t go back on the agreements they enter into with their clients. No doubt many brokers told clients what the revert rate would be and now Skipton are going back on this, lenders shouldn’t be allowed to do this.

  • Richard Scott 18th February 2010 at 6:51 pm

    Re: Anonymous @ 5.18pm. So what you are saying is that the right of the Skipton to use their existing customers as a bail out fund for decisions they took a few years ago to gain business by having a competitive. Now when that competitive edge does not suit them they ask mortgage payers to foot the bill in the hardest economic conditions for years. Also it seems for him that brokers who used their knowledge of the market to point their clients to an advntage should now have to take the flack from their clients because of Skipton’s decision. Or perhaps the cynic in me says he sold lots of Skipton mortgages on this premise and now has the opportunity to remortgage them again, and does not want this legal challenge to derail his plan. As far as I am concerned TCF works from both sides not just the brokers.

  • Luke Atkinson 18th February 2010 at 6:47 pm

    I’m assuming the comment posted at 5:18pm on the 18th was by somebody who works for a bank / building society!? No wonder they have remained anonymous.

    Have Skipton increased their savings rate? Of course they haven’t.

    Put the moral issues aside, of which there are many, I am in complete agreement with the comment surrounding advisers who have based their advice around this SVR ceiling, this sort of action makes brokers look incompetent when we all know that 9 out of 10 times its the lenders who are incompetent, unfair and misleading!

    FSA – where are you when we need you??

  • Jon 18th February 2010 at 5:18 pm

    So you would rather see the Skipton lose money, and in the end be taken over by somebody else. It is amazing that brokers who should understand how lenders fund mortgages seem to have no idea.

    The other question to be asked is who is going to fund this action?

    Taking the various comments from the different threads it is understandable that an increasing number of lenders are choosing to reduce the amount of business they take from brokers.

  • TM 18th February 2010 at 4:38 pm

    Well Done!A great move to combat this shamefull anti TCF approach by Skipton, letys hope the FSA now have the leadership to show some teeth andf follow up this by asking Skipton to justify and explain what appears to fly in the face of evry TCF briefing I have attended. Mr Cutter, can you live up to your name please?

  • Mark Sutton 18th February 2010 at 4:35 pm

    I hope Leon Kaye are successful as I for one am fed up with the Banks and Building Societies making it up as they go along. The worst offenders seem to be the mutuals at the moment. So much for mutuality benefitting members! It could be the case that brokers have advised clients to go with Skipton because they felt that the SVR ceiling was beneficial to the client should they decide for whatever reason not to remortgage – where do they stand now. In my experience there are now a significant number of people who cannot move away from their current lender, none of us could have forseen that, but it is not fair that the lenders should see these people as cash cows. Yet again the lenders are riding roughshod over Treating Customers Fairly.

  • Ketan Yadav - Avenue & Co Private Finance 18th February 2010 at 4:34 pm

    If the lawyers can pull it off – well done.

    Skipton are in the wrong and they changed their contracts – that is surely a case itself?

    I have another client who had his interest rate changed on a commercial loan with Allied Irish Bank – even though everything was up to date. They cited ‘adverse market conditions’. His rate went from BBR + 1% to BBR + 5%!