In this letter to Andrew Tyrie MP I ask him to take action to stop mortgage lenders cheating their buy to let Bank of England (BOE) mortgage tracker rate customers by invoking small print terms in separate documents that were never meant to apply to BOE tracker loans. I have highlighted this by illustrating from my own personal experience with these mortgages. These mortgages are tracker rate mortgages NOT standard variable rate (SVRs) mortgages, yet the lenders are trying to treat them like SVRs
To Mr. Andrew Tyrie MP
Chairman of the Treasury Select Committee
House of Commons London SW1A 0AA
From David Lawrenson
28th November 2013
Dear Mr. Tyrie,
Why You Must Act In Relation to Unfair Rises on Buy to Let Mortgage Tracker Rates
I am writing with reference to the activities of the Bank of Ireland (BoI) and the West Bromwich Building Society (WBBS) in relation specifically to Bank of England (BOE) base rate tracker buy to let mortgages – a topic which I know you are familiar with from your comments in the media. (You may also be aware of similar issues in the past in relation to the Skipton and the Manchester Building Societies).
I would be grateful if you could carefully read my letter – which urges you to take action to stop mortgage lenders who are trying to wriggle out of their commitments on BOE tracker mortgages.
Before I turn to the meat of the issue, may I please give you some background on myself, which may prove useful.
I am David Lawrenson. In the public eye, I am probably best known as the author of the book, “Successful Property Letting” which has sold 55,000 copies since it came out in 2005 and which, since its launch, has consistently been the UK’s top selling book in the “property and real estate” genre. It is now into its fourth edition.
In addition, at my site www.LettingFocus.com, I am also a noted and respected commentator on issues affecting private landlords and the private rented sector (PRS) in general.
I speak widely to many different interest groups as an expert on the PRS and just within the last year I have given evidence to the Housing and Regeneration Group on the PRS at the London Assembly. I have spoken to the Council of Mortgage Lenders at their Buy to Let conference and to national conferences of the Institute of Housing.
Within my consultancy business I advise both private landlords as well as organisations too. I have advised private companies, including mortgage lenders and in the public space I have helped local authorities and housing associations too.
Each day, over 1,500 people read my website or blog and I have an opt in mailing list of over 5,000 people which includes not just landlords but also a wide range of personnel from organisations that seek a relationship with the private rented sector as well as MPs and other interested parties.
I am a portfolio landlord who lets property mainly in South East London.
In my work as an independent expert on the private rented sector, I am also viewed as a person who advocates improvement in the private rented sector and fair dealings in the property letting business. My views often, but not always, coincide with those of the landlords associations.
For example, for many years I, along with housing charity Shelter, strongly argued against the views of most mortgage lenders, who generally still have a policy of not allowing landlords to let to people who are on housing benefit or to let their properties on fixed terms of more than 12 months.
Following my evidence on this to the London Assembly in December 2012, the Nationwide and Lloyds Banking Groups both performed U-turns on these restrictions. (I had argued that such blanket restrictions applied for all landlords did not even make economic sense for the lenders themselves, though perhaps some limited restrictions on tenancy length were merited for the smaller, less experienced landlords).
I hope this background on myself is useful as I would like to now turn to the point of this letter – which is about what I see as unfair behaviour by the two lenders in question. I would like to add that I do not have a mortgage with any of WBBS, BoI, Skipton or Manchester Building Societies.
As you will know, WBBS recently followed the BOI in invoking small print clauses that were always and clearly meant to apply to standard variable rate mortgages to try to hike the margin over the BOE base rate. The lenders are trying to treat these mortgages as if they were standard variable rate mortgages, which is what they most certainly aren’t and were never intended to be.
Their argument seems to be that these “small print items” could somehow overrule all their marketing documentation and all the information in the main mortgage terms and conditions which their borrowers had signed.
It is clear from my own postbag, from meeting landlords at my seminar events and from the work of Property118 (who have hopes of organising a class legal action) that every single landlord who took out one of these lifetime tracker mortgages believed that they were getting a tracker mortgage that would follow the BOE base rate at a set margin. (This set margin would either apply from the outset of when the mortgage was taken out, or would “follow on” from the end of an initial time period when the mortgage rate may have been at a set high fixed rate).
I would like to turn now to my own personal experience as I think it reflects very much the experiences of many other landlord borrowers.
All my own buy to let mortgages tracks the BOE rate. I always purposely avoided any mortgage that follows the lenders’ Standard Variable Rate, unless that rate was also specifically pegged to the BOE rate for the very good reason that I do not like to give the lender a “blank cheque” to hike the interest rate to whatever interest rate it feels like charging in order to maximise its own profits.
When I took out these mortgage tracker products, I always made a very careful analysis.
Often the BOE tracker mortgages I took out were initially more expensive than other deals on offer.
For example, about 5 years ago I took out a mortgage of about £165,000 where the application fee was over £3,500 and the initial rate was set at 5% over base for a period of 3 years, after which time it then switched to a BOE rate tracker of 2% over BOE for the rest of the term of the mortgage.
At the time I took this out , there were other mortgage deals available with nil or low fees and interest rates set at very low levels for a period of a year or two. However, I did not take these out because they all then moved to the lenders’ standard variable rate. (As I mentioned before, I wanted to avoid giving the lender a blank cheque to charge me whatever they felt like).
So, like many other borrowers who took out BOE base rate trackers, I took the pain of paying a high fee initially (and in my case, also a high interest rate for 3 years) in order to benefit from a low margin over BOE rate for the rest of the term of the mortgage.
You could say that I took a bet which was to suffer some pain in the short term for a longer term of lower repayments and the certainty of knowing that my mortgage would be at the mercy of the Bank of England and not the needs for profit of a lender who could flex its standard variable rate at any time. You could say I won the bet.
For at least two other BOE tracker mortgages, I was not sent the “general terms and conditions” document where some of the lenders say these “get out clauses” reside. For one mortgage loan, I even wrote and highlighted that I had not been sent this document. Although the lender replied on other issues raised in my letter, they failed to respond on this particular point and still not have not done so to this day.
Let us now turn to the lenders in question and how these loans were presented.
In the case of WBBS, until only two weeks ago, the lender had live on its own website under “tracker mortgages” a statement that said that these tracker mortgages gave borrowers “the certainty of knowing that their mortgage would always follow the BOE base rate”.
Indeed, all the mortgage documents that the customer signed gave the clear impression that they were taking out a tracker mortgage – one that follows the BOE rate at a set margin that could not be altered.
Even if the customers had received the “general terms and conditions” document and read it in fine detail, I’m not sure that they would not have been aware that at some future point their tracker mortgage margin could ever be altered.
I contend that any borrowers’ reasonable assumption would be that this “general terms and conditions document” is just that – a general document and the terms that cover how the lender could increase the interest rate if it was faced with “funding issues” or due to “adverse competitive conditions” must surely relate to Standard Variable Rate mortgages only.
After all, these customers took out a BOE tracker – all the marketing they were sent and the information online said it was a BOE tracker. Indeed, the main mortgage document they were sent says it was a BOE base rate tracker. It was a BOE base rate tracker set at a set unalterable margin over base rate. There can be no question over this whatsoever. These were NOT standard variable rate products.
I would also note that the website property118 alleges that WBBS have singled out for this rate hike just those customers who are portfolio landlords and those who came to the lender via mortgage brokers. However, I cannot verify that here, other than to highlight that some have seen this as a cynical and possibly unfair or illegal move.
It seems that the FCA seems disinclined to act as they say that buy to let mortgages fall outside what they have responsibility for.
This seems ludicrous to us as the vast majority of customers taking out these loans are ordinary “small player” landlords who should be protected by the state. These borrowers are not the Graingers of the PRS world.
There is also the issue of overall fairness and decency here – and I am sure you are conscious of the recent alleged activities of Royal Bank of Scotland who it is said have been actively pushing customers into debt so they could then asset strip their businesses.
Put simply, Mr. Tyrie, the moves by these lenders seems to be an abuse of their power – and one which is blatantly unfair. It will lead to some landlords going out of business and to tenants losing their homes. Other landlords may survive but will have their spending power and re-investment power in further lettings severely curtailed.
I note that both WBBS and BoI are in a precarious financial position. In the case of WBBS, there is also some “past form” in relation to their past role on equity release products. And, I note their recent loss in court a case against Prideview Properties, which may have some echoes of the RBS case currently in the media.
I think the hope of these lenders is that the borrowers will be unable to raise the necessary funds to take them on and defeat them in court. This is what happened in the case of Skipton Building Society’s tracker rate hike a few years ago.
They may be right but, if so, this seems completely unfair and does suggest some element of bully boy tactics.
Indeed, going further. some landlords have told Property118’s forum that WBBS have implicitly threatened them with repossession within 28 days if they do not comply and pay the increased mortgage rate.
It is regrettable that the FCA seems either disinclined to act or has failed to understand the real issues.
So I think the time has come for you to act to put pressure on the FCA to take some action to stop mortgage lenders invoking these get out clauses, which, (if they ever existed in the first place), were not bought to the attention of borrowers and more importantly were clearly never intended to apply to BOE rate tracker mortgages.
I look forward to your response.
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Thursday 28th November 2013