Regulator Warns Tracker Rate Rises Could Be Unlawful

[Damik]

http://www.telegraph...e-unlawful.html

The FCA's letter, sent today, revealed that a number of mortgage lenders have contacted the regulator about changing their mortgage contracts, including standard variable rates, according to The Times.

The letter, from Clive Adamson, the director of supervision at the FCA, warned such changes could breach consumer law and the regulator's principles for business.

It seems that FCA is not on our side. It seems that it is OK to pay only £60 pm for 200k mortgage and be subsidised by the tax payer ...

Edited November 20, 2013 by Damik

[little fish]

If the banks continue with tracker and svr increases we have concrete proof that they are in control (as if we needed it). But is this not a contract law issue? If it's in the contract then surely nothing can stop them, as long as procedures are carried in compliance with the t&c's?

That lenders are approaching the FCA seems to indicate that their contracts may not be airtight enough to withstand scrutiny on residential mortgages. Not sure the FCA has grounds to give any other advice.

BTL is unregulated. Different ballgame...

[Monkey]

It also shows that the low IR is also hurting the banks, as in the boom when IRs were 5%+ and they could offer decent saving account etc, money deposited etc they didnt need to go crawling to the regulator

[Sancho Panza]

Property 118.com 30/9/13

'Over 1,000 people have registered an interest in the Class Action groups challenging the legality of the increases to tracker mortgage interest rate margins proposed/implemented by West Bromwich and Bank of Ireland.

The reasons we started this campaign are very simple:-

1) We believe the actions of West Brom are immoral

2) We believe the actions of West Brom are unlawful, i.e. they have no legal grounds to increase their tracker rate margins

3) We have no wish to subsidise other areas of the West Bromwich Building Society business model

4) We are fearful of other lenders following suit if West Brom are allowed to get away with this.'

Comedy gold.

I'm not a lawyer,but I'd have thought they've more chance of a misselling claim against the broker that sold them the product.

Alexander Law says: Read about me on my member profile 20/11/2013 at 19:13 I’m right behind a court case. Like Dean says, if 1,000 interested parties each contribute £100 we’re there. Failing that if 100 people contribute £1,000 we can do it. And that’s 3 months increased repayments to us, which we will get back when we win. Or as Shaun, Jackie and many others suggest somewhere in the middle is more likely, but we can raise the cash to take this to court.

And we can set a precedent so that even with a pathetic bunch of politicians and toothless civil servants, we can prevent this abuse from happening again.

I think Mr.Westhoff has seriously underestimated us.'

Mike L says: Read about me on my member profile 20/11/2013 at 20:02 Reply to the comment left by “Alexander Law” at “20/11/2013 – 19:13“:

Well said, Alexander, I’ll be proud to be one of the 100! Even prouder if there are 1000 or more!

I wonder how many of the WB employees involved in this have seriously thought about their future and what happens when the society loses in court? When it’s all over and the costs of this disaster are being counted there’ll be some tough questions for those who came up with this ridiculous course of action and for those that were seen to support it. Will you really want that on your CV? And what will it mean for your future career prospects?

If you work for WB and are reading this and do not agree with the actions of the mad few that think this is a good idea you need to speak up now. If you don’t you’ll be seen as supporting them and when it’s all over you’ll be one of those that is ridiculed and laughed at by the rest of the industry. They’ll all say: ‘What a bunch of thoughtless losers!’ and ‘Silly guinea pigs sent out to slaughter!’ It’s no good claiming then that you were just following orders.

Once this goes to court it will all be all too late. The names of those responsible will come out in due course and they’ll have to explain how they thought that lying and disregarding the law was ok in the pursuit of their greed. If you do not want to be one of them then the time to do something about it is running out.'

[Ah-so]

The ability to raise interest rates on tracker mortgages will be in the contracts, but that does not mean that banks can raise them willy nilly. It is to allow for a real market dislocation not to make up for incompetent interest rate risk hedging. Banks assumed that they could always raise funding at near base rate or below. That is bad risk management and not all banks that offered trackers made the same mistake - some actually hedged the basis risk.

[Si1]

The ability to raise interest rates on tracker mortgages will be in the contracts, but that does not mean that banks can raise them willy nilly. It is to allow for a real market dislocation not to make up for incompetent interest rate risk hedging. Banks assumed that they could always raise funding at near base rate or below. That is bad risk management and not all banks that offered trackers made the same mistake - some actually hedged the basis risk.

Indeed

It may contravene consumer laws, and I'm guessing the contacts don't hold water in that light

[Si1]

In this case, the landlords will not carry the cost, the banks will.

Net long term result will be the same. Less money available to finance houses.

[Ah-so]

If the banks continue with tracker and svr increases we have concrete proof that they are in control (as if we needed it). But is this not a contract law issue? If it's in the contract then surely nothing can stop them, as long as procedures are carried in compliance with the t&c's?

That lenders are approaching the FCA seems to indicate that their contracts may not be airtight enough to withstand scrutiny on residential mortgages. Not sure the FCA has grounds to give any other advice.

BTL is unregulated. Different ballgame...

The banks still have responsibilities under 'treating customers fairly' which can override pure contractual terms.

[little fish]

The banks still have responsibilities under 'treating customers fairly' which can override pure contractual terms.

Yes they do and these TCF's are regularly updated. I was saying that the contracts must not be airtight enough to get around them so the FCA can't really offer any advice other than what it did.

The lenders approaching the FCA must be hurting really bad...

[ChumpusRex]

The contracts, as far as I know (2nd hand sources only), were phrased so as to allow re-linking of the tracker "in exceptional circumstances".

That's a very vague term, and I suspect an answer will only be decided in court.

On one side, interest rates are at an historic low and have been for a prolonged period of time. This is certainly exceptional as it is unprecedented and realistically unpredictable prior to 2007. Against that, however, is that the default position is that banks are hedged against this risk by the use of short term financing, or interest rate swaps. It is inconceivable that any bank would write a long-term tracker loan without hedging the base rate.

On the other side, you have the basis risk that remains from a hedged base rate position; namely that of the base-LIBOR spread. This has ballooned in the last few years, returning to historically normal standards (not the super low zero risk environment of 2005-2007). By any account, the current spreads are not exceptional (even before their recent narrowing). This is likely to be the more salient spread, and if as has been suggested, some other banks/BSs hedged this basis risk, then it seems fairly clear cut that the current circumstances are not exceptional.

[Si1]

On the other side, you have the basis risk that remains from a hedged base rate position; namely that of the base-LIBOR spread. This has ballooned in the last few years, returning to historically normal standards (not the super low zero risk environment of 2005-2007). By any account, the current spreads are not exceptional (even before their recent narrowing). This is likely to be the more salient spread, and if as has been suggested, some other banks/BSs hedged this basis risk, then it seems fairly clear cut that the current circumstances are not exceptional.

That rather implies basic incompetence from the banks own risk handling departments, but also the regulators

[shindigger]

So who do the group want to win this particular spat?

[cybernoid]

BTL is unregulated. Different ballgame...

I hope this has no affect on BTL borrowing.

We shall how this pans out. But if the banks can't make money out of these existing deals they will have to make it up elsewhere, no such thing as a free ride for these borrowers. Other future borrowers will have to pay for it with a higher cost of borrowing, which is good from a future affordable housing perspective.

And let's not forget its not as if these borrowers had the foresight to predict where base rates would be today. It is amusing to imagine them being up sh1t creek due to nothing more than their own irresponsible borrowing and have them justify this to themselves by claiming its the nasty banks wot done it. Whether the base rate rose or the bank managed to increase the cost of borrowing the effect would be the same, they'd still be screwed due to their own stupidity, to hear them come out against the banks for not keeping the cost of borrowing down to these once in 300 year lows and claim that was part of their game plan all along is hilarious.

They are in dire straights due to themselves and are clutching at straws. That this straw clutching might actually work doesn't absolve them of the responsibility of their own dangerous borrowing. It is a shame that once again the rest of society might have to pay for this minorities stupidity and greed.

I hope they lose.

[little fish]

So who do the group want to win this particular spat?

I was just wondering that myself - bit hypocritical of me but for BTL I have no problems at all with the banks raising rates or requesting full pay back forcing sales. I think it has only started and several BTL lenders will follow West Brom + BoI. I don't think it will happen on any great scale with residential though.

What do you think shindigger?

[interestrateripoff]

Its a tough one. What will win economics or the law.

It's like interest rates are a rip off....

[little fish]

Property 118.com 30/9/13

Comedy gold.

I'm not a lawyer,but I'd have thought they've more chance of a misselling claim against the broker that sold them the product.

I think this is the 118 broker warning them not to do that...

Advice was pretty much none existent. Brokers would provide guidance to their clients on whether a proposal would match a lenders criteria and they may have suggested alternative products to consider but that's about as far as it went. Fees charged by brokers were for arranging mortgages, NOT for advice.

Non-advised mortgage brokers were right for most people in the boom years where speed was arguably the most important consideration, refinancing was an easy exit route if a mistake was made and property values were soaring which also masked any mistakes.

Buy to let mortgage sand commercial finance remain unregulated so anybody can theoretically arrange a mortgage for you and charge you a fee and take commission.

http://www.property118.com/how-mortgage-broking-has-changed-post-credit-crunch/60711/''>http://www.property118.com/how-mortgage-broking-has-changed-post-credit-crunch/60711/' rel="external nofollow">

http://www.property118.com/how-mortgage-broking-has-changed-post-credit-crunch/60711/

[shindigger]

Odd double post.

Anyway, i think i JUST want the banks to win.

So that "the people" get scared.

Its too much to hope that society would reject banking, in its present form, in sufficient numbers to make any difference.

So i think its best that they scrape a victory in this instance.

Edited November 20, 2013 by shindigger

[gf3]

These regulators are fck useless. It is a binary decision yes or no.

How many people work as regulators how much do they get paid. I can understand people wanting to take a week over a decision but how long has this been going on?

Mind they probably haven't been to work for 3 months they are still stood in their bedroom trying to decide which tie to ware.

[shindigger]

These regulators are fck useless. It is a binary decision yes or no.

How many people work as regulators how much do they get paid. I can understand people wanting to take a week over a decision but how long has this been going on?

Mind they probably haven't been to work for 3 months they are still stood in their bedroom trying to decide which tie to ware.

I'll have a stab at this...

50% of the regulators office are stuffed to the gills with WBA BTL mortgages?

How did i do?

[Sancho Panza]

I think this is the 118 broker warning them not to do that...

http://www.property118.com/how-mortgage-broking-has-changed-post-credit-crunch/60711/''>http://www.property118.com/how-mortgage-broking-has-changed-post-credit-crunch/60711/' rel="external nofollow">

http://www.property118.com/how-mortgage-broking-has-changed-post-credit-crunch/60711/

Thanks for that Neon.

Be interesting to see how this one rolls out.

Edit to add:it does seem as if the BTLers in question are damned if they win and damned if they don't.

Edited November 20, 2013 by Sancho Panza

[Si1]

I was just wondering that myself - bit hypocritical of me but for BTL I have no problems at all with the banks raising rates or requesting full pay back forcing sales. I think it has only started and several BTL lenders will follow West Brom + BoI. I don't think it will happen on any great scale with residential though.

What do you think shindigger?

+1

[spyguy]

I was just wondering that myself - bit hypocritical of me but for BTL I have no problems at all with the banks raising rates or requesting full pay back forcing sales. I think it has only started and several BTL lenders will follow West Brom + BoI. I don't think it will happen on any great scale with residential though.

What do you think shindigger?

BTL = 'professional' - peer to peer. business to business.

OOO = consumer - as in individual against a company.

It might go to court. The Judge will consider the facts and side with bank.

Its like that stupid bint from Shelter crying out that's she's 'an accidental LL of 3 properties'. A quick google comes up with her website called where she claims to be a 'professional LL' and has 20+ BTLs.

In the unlikely event it goes against the bank then WBA will just ask for the loan to be repaid.

[spyguy]

Just gone to the property 188 site.

Got an ad 'This site relies on donanations' . . .

The feature article starts:

'During the buy to let boom years of 1996 to 2008 most buy to let borrowers were primarily focussed on getting deals done quickly. They knew that if they spent time with a financial adviser to complete a full review of their financial circumstances there was a significant risk of being gazumped. Having found a deal, particularly via a developer, they were generally given no more than 28 days to exchange contracts.'

http://www.property118.com/how-mortgage-broking-has-changed-post-credit-crunch/60711/

After all, if you won't want to buy the magic beans there are loads more people waiting to snap my hand off.

'This is because many of the larger brokers had sophisticated online systems to process mortgage applications. They were also commissioned by mortgage lenders to “package” deals which included arranging valuations and credit scoring credit scoring. Some brokers were so sophisticated that they could obtain a decision in principle and instruct a valuation, which would be paid for on a credit card, within hours. '

Cough cough.

Im sticking my neck out here but here's the 'sophisticated software' used by brokers:

if (year < 2006) then print "Yes"

else if (year > 2007) then print "No"

Edited November 21, 2013 by spyguy

[Sancho Panza]

In the unlikely event it goes against the bank then WBA will just ask for the loan to be repaid.

Outside the M25 they'll just invoke the capital call clauses for LTV breaches.NAB have been using those clauses for a while now and not had any problems from what I understand.Like I said,either way these BTLers are toast.It just appears they don't know it yet?

And that's the irony really, because if they just kept their traps shut they could keep their portfolio's and pay a little more interest.If they win,they'll just find another avenue to get them off their balance sheet,that may result in them being unable to remo at all and losing the lot.

It'd be interesting to know the geographical mix of WBBS's loan book.

Edited November 21, 2013 by Sancho Panza

[little fish]

Outside the M25 they'll just invoke the capital call clauses for LTV breaches.NAB have been using those clauses for a while now and not had any problems from what I understand.Like I said,either way these BTLers are toast.It just appears they don't know it yet?

And that's the irony really, because if they just kept their traps shut they could keep their portfolio's and pay a little more interest.If they win,they'll just find another avenue to get them off their balance sheet,that may result in them being unable to remo at all and losing the lot.

It'd be interesting to know the geographical mix of WBBS's loan book.

Well they don't lend in Scotland, Northern Ireland, Isle of man or Channel Islands so that narrows it down a bit for you. They say they don't lend in areas they deem as poor locations or on property in poor condition (means nothing).

6700 BTL professionals are due to be hit with the rate increase. A small % of their book I would think - just testing the water?