Ombudsman: No reason to expect that "variable rate" related to a tracker rate

[Brendan Burgess]

This is a very interesting decision from the Ombudsman which will have implications for others. I attach the decision, but here is the summary

August 2004 drew down the mortgage on a discounted variable rate
October 2006 fixed for two years

October 2008 - borrowers claimed that the bank manager advised them that the 5 year fixed rate of 4.9% was a very attractive rate

Borrowers claimed

• They were not offered a tracker in October 2006 or October 2008
  • Trackers were available during this period
  • And the borrowers had trackers on two other properties
• They were incorrectly advised to enter a 5 year fixed rate

Bank said :

• There was no reference to a tracker in either the 2004 mortgage contract or the fixed interest rate documentation in 2006
• By October 2008 they had ceased to offer trackers
• In the original application in 2004, the borrowers had the option of a tracker, but chose the discounted variable rate instead
• The other two mortgage contracts were completely separate and had no bearing on this mortgage
• They denied that the bank manager had advised them to fix for 5 years

The Ombudsman ruled

it was clear in the documentation that, on expiry of the discounted variable interest rate period in 2006, the loan would revert to the “appropriate
variable rate.”

As a result, the bank was under no contractual obligation to offer them a tracker interest rate on their mortgage loan.

The fact that the bank was offering tracker interest rates to new or existing mortgage customers, including on the couple’s other properties, did not create an
obligation to offer a tracker rate in all situations.

While the Ombudsman accepted that the bank did not include a specific definition of “variable rate”, in this instance he took the view that there was no
reason for the couple to reasonably expect that the term “variable rate” related to a tracker interest rate, given that their account drew down on a
standard variable rate.

 

[Brendan Burgess]

By way of contrast, in the Bank of Scotland case which the Ombudsman did uphold.

• The couple started on a tracker
• They fixed after a couple of years - the documentation said "you will move to the Standard Variable Rate after the fixed rate period"
• As the documentation did not specify that they would lose their tracker rate, the Ombudsman directed Bank of Scotland to put them back on the tracker.
• The SVR was not defined in the mortgage contract, although it was defined in the rates sheet and on BoSI's website.

 

[Brendan Burgess]

I think that this decision has implications for other borrowers who are claiming that the references in their documentation to "variable rates" could include trackers, because trackers are variable rates.

It seems to me from this decision, that this line of reasoning will not be enough on its own. You will need to provide some other evidence to support your view that a variable rate was intended to mean a tracker rate.

Brendan

 

[tnegun]

Would you include the EBS Variable Base Rate in that?

 

[demoivre]

Should the thread title not read " No reason to expect that the "Appropriate Variable rate" related to a tracker rate" ?

 

[Brendan Burgess]

Hi demoivre

The thread title is a summary.

Brendan

 

[elcato]

Should the thread title not read " No reason to expect that the "Appropriate Variable rate" related to a tracker rate" ?

Up until 2009 an SVR tracked the ECB rate. There lies the shambles we have now.

 

[demoivre]

I think that this decision has implications for other borrowers who are claiming that the references in their documentation to "variable rates" could include trackers, because trackers are variable rates.

It seems to me from this decision, that this line of reasoning will not be enough on its own. You will need to provide some other evidence to support your view that a variable rate was intended to mean a tracker rate.

Brendan

I agree with this but I'm unaware of anyone , or any threads on AAM , where folks claimed that a "variable rate" meant a tracker rate.

 

[demoivre]

Up until 2009 an SVR tracked the ECB rate. There lies the shambles we have now.

I thought the shambles arose because of vague terminology in mortgage contracts, contrary to a number of guidelines.

 

[B26354]

I haven’t seen anyone on this site claiming that if they only had the term “variable rate” that they should have been offered a tracker.

 

[mccoypat94]

what about prevailing rate?

 

[pguyo]

Would you include the EBS Variable Base Rate in that?

Thats where the terms are grey.... how grey is up to the ombudmans i suppose....

 

[tnegun]

what about prevailing rate?

For the AIB guys the clause was "Conversion to Tracker interest rate mortgage loan at the banks then prevailing rates" so there is no ambiguity they are entitled to a tracker, the ombudsman needs to rule on what the prevailing rate should of been.

 

[tnegun]

Thats where the terms are grey.... how grey is up to the ombudmans i suppose....

Thats what I was thinking definitely not clearly one or the other

 

[maccers_85]

For the AIB guys the clause was "Conversion to Tracker interest rate mortgage loan at the banks then prevailing rates" so there is no ambiguity they are entitled to a tracker, the ombudsman needs to rule on what the prevailing rate should of been.

That doesn't leave me with too much hope. How could he determine what it might be?

 

[tnegun]

I hoping it will be 1.5% as is the rate that prevailed until AIB changed it in late 2013.

 

[peemac]

Up until 2009 an SVR tracked the ECB rate. There lies the shambles we have now.

Yes and no. But it didn't track the way a tracker Mortgage would track the rate.

I've had mortgages since 1990, and moved home 5 times until current house purchased in 2005.

So up to the 2005 mortgage, all were standard variable rates or fixed rates that moved back to the variable rate - and it was the same for many years before that too.

Mortgage rates did move at similar ways to ecb or irish central bank rates - but not always immediately as they must do with trackers, and not always by the exact same amount as a tracker must.

Some banks tried to hold off as long as possible until media pressure led to the changes. In most cases they announced reductions a couple of days into a new month and to take effect from the following month.

But yes, they "followed" ecb / cbi moves, but did not track them.

 

[B26354]

Yes and no. But it didn't track the way a tracker Mortgage would track the rate.

I've had mortgages since 1990, and moved home 5 times until current house purchased in 2005.

So up to the 2005 mortgage, all were standard variable rates or fixed rates that moved back to the variable rate - and it was the same for many years before that too.

Mortgage rates did move at similar ways to ecb or irish central bank rates - but not always immediately as they must do with trackers, and not always by the exact same amount as a tracker must.

Some banks tried to hold off as long as possible until media pressure led to the changes. In most cases they announced reductions a couple of days into a new month and to take effect from the following month.

But yes, they "followed" ecb / cbi moves, but did not track them.

Peemac- there were 7 ECB base rate changes between April 2004 and March 2008. If during this period your rate changed in line with the ECB base rate immediately following each of these changes with the exact same margin applicable (e.g. ecb +1.25%)...and you were sent a letter immediately after each of these 7 ECB rate changes confirming that your rate has changed because of said ECB base rate change ...and your mortgage contract referenced a base rate...would this rate in your opinion be a SVR or tracker rate?

 

[peemac]

Peemac- there were 7 ECB base rate changes between April 2004 and March 2008. If during this period your rate changed in line with the ECB base rate immediately following each of these changes with the exact same margin applicable (e.g. ecb +1.25%)...and you were sent a letter immediately after each of these 7 ECB rate changes confirming that your rate has changed because of said ECB base rate change ...and your mortgage contract referenced a base rate...would this rate in your opinion be a SVR or tracker rate?

There were many rate changes before trackers existed and the mortgage rates generally followed those changes fairly quickly.

If a bank did not make a change, the media questioned it and they quickly became uncompetitive and banks generally had a similar margin.

Mortgages were rather boring loans before trackers.

 

[B26354]

There were many rate changes before trackers existed and the mortgage rates generally followed those changes fairly quickly.

If a bank did not make a change, the media questioned it and they quickly became uncompetitive and banks generally had a similar margin.

Mortgages were rather boring loans before trackers.

So a good way for a bank to manage market challenges such as competition & media pressure around rates was to somehow conflate an SVR & tracker product.