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Nationwide rate increase may breach consumer regulations, says Which?

Which? believes Nationwide may be in breach of consumer regulations and its contractual terms over its plan to increase mortgage rates for some of its customers by 1.5 per cent.

Nationwide is to hit its residential mortgage customers who let out their properties for six months or more with a 1.5 per cent increase on their mortgage payments from September 1, 2010.

The Office of Fair Trading told Money Marketing the case was an issue for the FSA, but the FSA has refused to comment.

Which? wrote to Nationwide in June after receiving reports from customers over the rate increase.

Nationwide says the reason for the increase is due to the administrative cost and risk involved with long-term letting.

A Nationwide spokesman says: “Nationwide offers mainstream residential mortgages designed and priced for people who live in their homes – we have a specialist lending arm, The Mortgage Works, for people looking to take a buy to let mortgage.

“There is an administration cost and a degree of additional risk involved when a borrower lets their property over the long term, which is why buy-to-let mortgages are priced higher – typically 1-2 per cent – than residential mortgages.  It is fair that those who let should meet these additional costs rather than the membership as a whole.”

Last week the Nationwide board came under fire from angry members at its annual general meeting over director pay for the coming year.


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There are 21 comments at the moment, we would love to hear your opinion too.

  1. “the Fsa has refused to comment”.

    As per usual

  2. Neil F Liversidge 28th July 2010 at 9:36 am

    Lenders are sly. I remortgaged my old house in 2007 to buy one that needed a lot of building work, intending to move in once it was complete and then rent out the old house. I told all this to Halifax at outset both in writing and verbally when the mortgage weas arranged and was assured – verbally “We’ll just give you a consent to let”. In due course when I asked for the promised ‘Consent to Let’ they insisted I would have to move from my highly advantageous tracker deal to a vastly more expensive BTL deal. Complaints got nowhere and the Halifax employee who conned me would not even take my calls. Call me a mug for accepting her word but that is how I do business, on a handshake. I keep my word and expect others to do the same. I won’t change the way I deal with people because most people in my experience live up to the confidence you place in them, but I’ll never trust a bank again. They’re so crooked, if they ate nails they’d crap corkscrews.

  3. Nationwide please logic statement of the additional risk and details of the administration cost penalties.

    Is the next assumption, the mortgage was provided on a property for 4 people, now there are 6 living in it. Ho Ho Ho, rate increase.

    Surely such action is covered by the Enterprise Act Unfair Terms of Business provisions.

    In anycase if Nationwide is so hard up and at risk, perhaps some inhouse economies are in order, firstly reduce the pay,benefits and pensions of the directors. Perhaps a new low cost logo The Nationwide Building Society that robs the poor to entertain the rich.

  4. My take on this is that the lenders are profiteering. There is no additional risk when I let my property out that I had been living in for some 8 years – the loan to value at that point was about 52% – where is the risk to the lender?
    The banks are fantastic at getting away with things that any other company or individual would probably be up on a charge for!

  5. Please can someone tell me where these rules are made up? Not in a mortgage offer stating your interest rate will rise if you let the property out and not in any terms of mortgage received. Just another way of milking loyal customers and taking advantage of the unfortunate people in neg equity in some cases.

  6. I’m sorry but I do not see how this would breach consumer regulations?? It’s simple really, customers who wish to rent their property must ask permission from their mortgage provider first and accept that a lender is under no obligation to agree. This will be documented within the mortgage conditions and is certainly not uncommon. If the customer is given permission then their mortgage is no longer classed as residential but as buy to let which generally have higher interest rates. If a customer is unsure then they should seek professional advice but this is a normal and fair occurrence.

  7. Kevin Grannersby 28th July 2010 at 10:34 am

    @Mike Greenwood – thank goodness for some common sense. Reading some of the other comments made me wonder whether I was actually hearing the thoughts of Financial Services professionals or not.

  8. I am actually in broad agreement of the right of a lender to increase the rate a borrower should pay when they are renting it out. In the first place the contract is for a residential home, not a BTL and all lenders offers state clearly that you have to seek their permission to let the residential property and there is nothing that says they have to agree! The lender could insist at the beginning that if the customer wishes to rent then they will have to move to another lender. There is also the dodge that some borrowers are crafty and always intended to let out after a respectable period of time.
    If you take someone on a Nationwide SVR paying 2.5 per cent then that is a very cheap BTL mortgage! In the circumstances I really don’t blame Nationwide and even increasing to 4 per cent, it is still a bargin for a BTL borrowing and it seems no arrangment fees of 2 per cent or so to pay either!
    Irrespective of what argrument Nationwide make to justify the increase they are still allowing borrowers to let their homes out on the cheap relative to the cost of a BTL mortgage.

  9. FSA has refused to comment ~ why? Is this not a TCF issue? Oh, I forgot, Hector’s admitted that TCF has been another failure so, what with Nationwide being (almost) a bank, we’ll hear no more about that. On its website, the FSA proclaims itself to be “an open and transparent regulator”. So come on FSA ~ be open and transparent.

  10. Is the Nationwide treating these customers fairly?

    My answer is not if it is isubsequently imposing new terms and conditions after it has granted permission for mortgagees to let their properties without there being a requirement to change the original terms.

    ‘Which’ are right to pursue this with the FSA

  11. Scott Gallacher 28th July 2010 at 11:36 am

    Which – just another blatent attempt to bash the financial services industry.

    Colin – Additional Risk? Tenants generally do not look after properties in the same way as owner occupiers. If the tenants move out or stop paying the rent then the owner is much less incentivised to pay the mortgage than he would if he could be made homeless.

    Derek – reading the monmouth mortgage offer on my desk it states “the property must not be let without the written consent of the Society”.

    Julian – As for this being a TCF issue my understanding that BTL mortgages are still unregulated and hence would not fall under TCF anyway.

  12. I agree with Mike Greenwood. Consumers do need to seek permission from the lender. Consumers should seek independent advice before proceeding. They need to understand that letting a property is a business that only has one customer,the Tenant. If the tenant vacates, it can be difficult to find another and when no rent is paid to cover the mortgage the owner could be placed in financial difficulty.Letting is a competitive market and rents can rise and fall accordingly also putting repayment of the mortgage at greater risk. The problem with Which is that they think that financial institutions should not take account of the risk to themselves in their business decisions and that we should all work for nothing.Maybe they should consider their own position.

  13. I presume that as i live in the property my mortgage is obviously residential – i rent some rooms out to supplament my income (which the lender is aware of) however my mortgage is purely based on my occupational income and not these addtional monies. Also the LTV is a low percentage so i would fail to see how they are suffering any kind of increased risk, in fact since i could just scrape by if i were to lose my job and still pay the mortgage with this income i would argue that it is more secure!

    The argument that someone has a residential mortgage and is actually letting the property out completely- well that does deserve higher rates as this is buy to let and not residential, and the risks are obviously greater.

    Which? do seem to act rather stupidily at times – there seems to be plenty of occasions where they could stick their oar in but on the whole it seems to be poorly judged or ill thought out. If you have a residential mortgage but then treat it as a buy to let and fail to notify your lender – isn’t that fraud?

  14. Most advisers will remember that it was almost the norm, perhaps only 7 or 8 years ago, for lenders to increase the mortgage interest rate if a customer applied for consent to let. As previous comments state, this interest rate will be much lower than any BTL rate that is available on the market.

  15. It will get more nasty and crafty, cut your losses, sellup and move your assetts abroad now. Dont say later didnt warn you. hihg taxes, banks increasing rates are only the beginning.They will con you even more as they balance their books. get your money out of this sh..island.

  16. As usual, this is publicity seeking by Which? for a campaign with no logic at all.

    As others have posted, the point is that the original contract was a residential owner-occupier mortgage. That is why it’s regulated. That contract does not permit letting without the lender’s consent, and the lender can choose to charge whatever they see fit for that consent which is to grant a variation to the original contract terms.

    The fact that a borrower has obtained consent, at some point in the past, for letting, does not mean that the lender has permanently waived its contractual rights.

    Other lenders, quite within their rights, refuse to allow letting under a residential contract at all, and make their borrowers switch to a BTL product. Nationwide’s application of an increase in rate – as others have noted, often from their laughable 2.5% rate to just 4.0% – is very reasonable indeed.

  17. @ Leslie. I think this hits the nail on the head. If Nationwide wish to impose these terms on cases in the future then that is perfectly within their rights. If, however, they retrospectively apply the levy to borrowers who have already obtained permission to let and may have made decisions based on the previous regime then this would be grossly unfair.

  18. Having spoken to nationwide and clarified the issue, i have had it confirmed that it is for residential mortgagees who have then decided to not live in the property and rent it out. If they didn’t do this then it would have allowed buy to let being carried out on residential mortgage terms. There is nothing unfair about this.

  19. My husband and I live in tied accommodation (clergy housing) and bought a tiny flat to try and get our feet into the property market to make provision for our retirement. 5.83% plus 1.5% extra is really hitting us. How are we supposed to save / provide for our retirement?

  20. For the info of the previous person (clergy), try EIG and speak to their broker. They have 2 high street lenders who are happy to lend to clergy on standard terms as they appear to understand that vicars are a bit like soldiers (?!!) in that they are posted places but need to keep their house. I’d recommend that anyone ‘posted’ for work talked to EIG Insurance. They helped us.

    Like many, I have been in discussion with Nationwide over this. The issues are 1. It isn’t buy to let. Nationwide have never offered BTL directly. They own other organisations for this purpose. They are charging people with standard mortgages, who have lived in their property, it is their nominated primary residence still and they have reason (eg work) to have to live elsewhere for a period of yrs. 2. Many who took out their mortgages did so on fixed rates. These fixed rates mean there is a penalty if the rate is left. For us, the rate is about 5.5%, increasing to 6.9% with the new addition. This is not an insignificant rate to be on. 3. To leave the fixed rate and go elsewhere now means incurring significant charges for early redemption. 4. I have a letter from Nationwide stating that they see those who have to vacate their property for work, but then let to pay the mortgage, as greater risk. In fact, there is an increased income due to the above that reduces the risk. 5. Nw staff have confirmed on the phone that there is no promise that the rate will remain at 1.5%. 6. Those who rent out a home do so on contracts that are a yr long. The activation period of this is just way to short to then be reflected in the rental required. Anyway, the 1.5% costs are far above the ability to recoup from rental.

  21. OMBUDSMAN RULED IN OUR FAVOUR TOO!! – Having submitted a formal complaint to the Ombudsman in late September, We have also just had a letter from the Ombudsman saying that “following their involvement, Nationwide has now told us it will not seek to apply the additional interest rate until your mortgage is free from early repayment charges”. At which point, obviously, we are free to take our custom elsewhere without penalty. Hoorah!!
    I REALLY URGE EVERYONE WHO FEELS ‘TRAPPED’ BY THE NATIONWIDE TO PUT A COMPLAINT IN TO THE FOS – Nationwide seem to be only responding to customers who will not give up with their complaints – but when challenged by the FOS, they are (see posts above) agreeing not to apply the charge until people have a chance to get another mortgage elsewhere without penalty.

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