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MM leader: Clause and effect of Skipton move

Skipton’s recent move to scrap the ceiling on its standard variable rate was a low blow for borrowers.

The ceiling gave borrowers comfort that their rate would never increase by more than 3 per cent over the Bank of England base rate.

Lifting this cap means borrowers on the SVR will see their rate jump from 3.5 per cent to 4.95 per cent, an effective rise of around 40 per cent. With the possibility of bank rate rises looming, borrowers could be paying even more further in the relatively near future.

It is true that Skipton had a clause in its mortgage contracts permitting it to break the SVR ceiling in “exceptional circumstances” but, as one MM reader commented on our website, would the lender be prepared to show forbearance if the borrower faced their own “exceptional circumstances” such as unemployment or a drop in income?

In fact, Skipton has also changed its arrears terms so borrowers will be hit with a charge if they fall just one month behind in their repayments whereas this charge was previously only levied in month two. So borrowers are being squeezed from both sides.

Skipton insists that its “exceptional circumstances” caveat was clearly stated in mortgage offer documents but the building society did not define what these circumstances were in the original documents, giving them free rein to define this as events developed.

The worrying question now is whether other lenders will follow suit.

Both Nationwide and Cheltenham & Gloucester have an SVR ceiling of 2 per cent over base rate. Halifax’s SVR ceiling is currently 3 per cent over base but it has already shown that this promise is not sacrosanct, having increased it from 2 per cent just over a year ago.

Other borrowers may be saved by a reluctance of the Government- owned banks to risk the PR fallout of such a move.

Although building societies have been by no means blameless during the economic crisis, we agree with Skipton that the implicit Government guarantee given to certain institutions, coupled within an unfair share of Financial Service Compensation Scheme costs, is putting a huge strain on parts of the sector.

But the surprise removal of a ceiling that already stretched borrowers were relying on has angered many.

For an industry trying to regain the confidence of the general public, this is a step in the wrong direction.


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There is one comment at the moment, we would love to hear your opinion too.

  1. I think we might see a group action by Skipton borrowers, certainly there is now a facebook group that is opposing the interest rate hike, as detailed in this article:
    Interesting that none of the borrowers were told since 2008 that they were in exceptional circumstances at the time they took out their loans, nor were existing borrowers told anything when they’d entered them. If it is a get-out catch-all clause it makes it an unfair contract. A term can be clarified later on but it’s actual meaning cannot be changed. The word guarantee however is used several times in the agreement and there is no mention that a low base rate could affect the ceiling in the contract or the key facts information. I really don’t think Skipton has a leg to stand on and would encourage anyone who can to band together with the similarly affected and do it.

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