Brendan Burgess
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PTSB November 2009 Case studies - Page 9
Mortgage rate had to return to original tracker rate at the end of fixed rate period
In June 2007 a couple took out a €1m thirty year mortgage from a Building Society based on a tracker rate of 0.75% over the ECB Repo rate. In August 2007, the Complainant decided to switch to the Society’s two year fixed rate of 4.79% and signed a Mortgage Form of Authorisation (MFA) in order to avail of this. The fixed rate term expired in August 2009. On its expiration the Society ruled that a tracker rate of 1.1% over the ECB Repo rate would be applied. The couple complained to the Ombudsman that the terms and conditions of the original mortgage offer ought to be applied and that the interest rate should revert to the tracker rate of plus 0.75%.
The Society however disagreed and insisted that the MFA served to displace the tracker rate condition in the original loan offer. In fact, the Society submitted that it was not even obliged to offer the Complainant a tracker rate of 1.1% above the ECB Repo rate. The only reason this rate was being offered was because a letter was sent to the Complainants in error in December 2008, which indicated that the Complainant’s mortgage would roll onto a tracker rate of ECB Repo rate plus a margin of 1.1%. The Society had decided to offer this rate because this erroneous letter could have led the Complainants to expect that they were entitled to this rate.
Having considered the evidence submitted by both parties, the Ombudsman was of the opinion that the original loan offer committed the Society to a tracker mortgage rate of 0.75% above the ECB Repo rate for the entire 30 year mortgage term. However, the Society had agreed to the Complainants’ request to fix the mortgage interest rate for two years. Indeed, the Society’s right to allow customers to avail of a fixed rate of interest was covered under the conditions of the original loan offer. The Society also argued that a condition of the Complainant’s original mortgage offer was superseded by the terms and conditions of the MFA.
The Society referred to the section of the MFA, signed by the Complainant, which stated: “I acknowledge that following the acceptance by the lender of this application, the terms and conditions applicable to the loan shall be amended/ varied by the terms and conditions set out in this form of authorisation, and I accept the said conditions and agree to be bound by them”. However the Ombudsman noted that the MFA further stated that the customer acknowledged and agreed that “save as set out in this Form of Authorisation, all the terms and conditions applicable to the Loan remain unchanged.” There was no express condition on the face of the two page MFA form relating to either (a) which rate of interest would apply following expiration of the fixed rate period or (b) the procedure to be followed upon termination of the fixed interest rate term. Accordingly it could only follow that the terms of the original mortgage concerning these issues had to apply. The Ombudsman found that this was the only reasonable interpretation which could be gleaned from the wording of the MFA.
In summary the Ombudsman found that the mortgage condition was not superseded by the MFA and so the Society must offer the Complainant a tracker rate as per the original loan offer. In those circumstances, he upheld the Complainants’ argument. The Ombudsman accordingly directed that the rate of 0.75% above the ECB Repo rate should be applied.
On the issuing of the erroneous letter of 2008 the Ombudsman stated that it would be in the Society’s best interest to extend a very high level of service and customer care to customers with mortgages of this size.
He also considered that the Society should review if cases similar to this one had arisen or may arise in future and if so, he considered that the same approach be applied. For that reason he copied his Finding to the Financial Regulator for any action it deemed appropriate to take including industry wide though he noted that other providers specified in detail what rate would apply at the end of a fixed rate period.
Mortgage rate had to return to original tracker rate at the end of fixed rate period
In June 2007 a couple took out a €1m thirty year mortgage from a Building Society based on a tracker rate of 0.75% over the ECB Repo rate. In August 2007, the Complainant decided to switch to the Society’s two year fixed rate of 4.79% and signed a Mortgage Form of Authorisation (MFA) in order to avail of this. The fixed rate term expired in August 2009. On its expiration the Society ruled that a tracker rate of 1.1% over the ECB Repo rate would be applied. The couple complained to the Ombudsman that the terms and conditions of the original mortgage offer ought to be applied and that the interest rate should revert to the tracker rate of plus 0.75%.
The Society however disagreed and insisted that the MFA served to displace the tracker rate condition in the original loan offer. In fact, the Society submitted that it was not even obliged to offer the Complainant a tracker rate of 1.1% above the ECB Repo rate. The only reason this rate was being offered was because a letter was sent to the Complainants in error in December 2008, which indicated that the Complainant’s mortgage would roll onto a tracker rate of ECB Repo rate plus a margin of 1.1%. The Society had decided to offer this rate because this erroneous letter could have led the Complainants to expect that they were entitled to this rate.
Having considered the evidence submitted by both parties, the Ombudsman was of the opinion that the original loan offer committed the Society to a tracker mortgage rate of 0.75% above the ECB Repo rate for the entire 30 year mortgage term. However, the Society had agreed to the Complainants’ request to fix the mortgage interest rate for two years. Indeed, the Society’s right to allow customers to avail of a fixed rate of interest was covered under the conditions of the original loan offer. The Society also argued that a condition of the Complainant’s original mortgage offer was superseded by the terms and conditions of the MFA.
The Society referred to the section of the MFA, signed by the Complainant, which stated: “I acknowledge that following the acceptance by the lender of this application, the terms and conditions applicable to the loan shall be amended/ varied by the terms and conditions set out in this form of authorisation, and I accept the said conditions and agree to be bound by them”. However the Ombudsman noted that the MFA further stated that the customer acknowledged and agreed that “save as set out in this Form of Authorisation, all the terms and conditions applicable to the Loan remain unchanged.” There was no express condition on the face of the two page MFA form relating to either (a) which rate of interest would apply following expiration of the fixed rate period or (b) the procedure to be followed upon termination of the fixed interest rate term. Accordingly it could only follow that the terms of the original mortgage concerning these issues had to apply. The Ombudsman found that this was the only reasonable interpretation which could be gleaned from the wording of the MFA.
In summary the Ombudsman found that the mortgage condition was not superseded by the MFA and so the Society must offer the Complainant a tracker rate as per the original loan offer. In those circumstances, he upheld the Complainants’ argument. The Ombudsman accordingly directed that the rate of 0.75% above the ECB Repo rate should be applied.
On the issuing of the erroneous letter of 2008 the Ombudsman stated that it would be in the Society’s best interest to extend a very high level of service and customer care to customers with mortgages of this size.
He also considered that the Society should review if cases similar to this one had arisen or may arise in future and if so, he considered that the same approach be applied. For that reason he copied his Finding to the Financial Regulator for any action it deemed appropriate to take including industry wide though he noted that other providers specified in detail what rate would apply at the end of a fixed rate period.
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