Key Post Successful case - NIB investment property on home loan rate

Discussion in 'The Financial Services Ombudsman' started by twofor1, Jul 19, 2012.

  1. greenoverred

    greenoverred Registered User

    Posts:
    16
    So here is the response from NIB to questions put to them ny the FO. I know some of you will enjoy this


    1. Is the Respondent satisfied that the letter of 28 June 2011 represents the response which it wants to make to this complaint? If any additional information or documentation is available, please furnish to this office.
    While we are satisfied that our letter represents our Final Response Letter, we wish to lay out our case from the outset. The following points will answer many of the questions below:
    • National Irish Bank has a number of customers who have home-loans for their principal primary residence (""PPR” loans) and a number of customers who have investment home-loans for a property other than their principal primary residence (“IHL” loans).

    • A certain number of these customers, such as the Complainant, would have been eligible for a loan, the interest on which would be calculated by reference to the Bank’s variable reference rate used for both PPR loans and IHL loans at the time, known as our “Variable Annuity Mortgage Rate”

    • In the case of any loans with fixed rate periods, the variable reference rate is relevant as it is stipulated to be the rate applicable to the loan following the end of the initial fixed rate period.
    • In February 2009 National Irish Bank decided to give a standard discount from the variable interest reference rate to PPR customers but not IHL customers. i.e. the same variable interest reference rate continued to apply to all customers, however PPR customers were given a discount in addition to any negotiated discount they would have agreed with the Bank. We anticipated that such a discount to PPR homeloan borrowers would be highly welcomed at this time.

    • To enable the Bank to distinguish who should be getting what rate, to ensure that customers correctly interpreted the Bank’s interest rate notices and for clarity as regards our regulatory reports to the Central Bank of Ireland, the Bank re-branded therates applicable to IHL Loans and PPR Loans although both rates always have been and continue to be calculated by reference to the Bank’ s variable interest reference rate.

    • We acknowledge that this nomenclature regrettably may have caused some confusion to. Our customers. However, notwithstanding this confusion all customers continued to have their interest calculated by reference to the contractually agreed interest reference rate in compliance with the applicable contracts. PPR customers were offered and given a special discount rate, which we are advised by Senior Counsel, IS an entirely lawful course of action (unless, clearly, if one acted in breach of contract).

    • Notably, the rate applicable to IHL will never exceed the commercially agreed rate (to do otherwise would be in breach of contract).

    • Regarding the specific complaint raised against the Bank, it is clear that the Complainant got what was agreed, i.e. an interest rate based on the contractually agreed reference rate. He is seeking in effect to avail of the special further discount that was available to PPR borrowers and not to IHL borrowers. As an investment loan borrower he simply was not entitled to this discount.
    It is important to apply the correct meaning to Clause 11.4 which governs the switch from the fixed rate period to the subsequent variable rate period. The facility letter dated 24 July 2006 clearly indicates that the rate to be applied will be determined at the point in time when the event occurs and does not in any way commit the Bank to an explicitly named rate. The facility letter states, the “the then applicable home loan rate”. In the event that the Bank had agreed to an explicitly named rate, this would have been specifically described using capital letters.

    2. Please provide all details in relation to this disputed mortgage account including but not limited to the date of application, date of draw—down, repayment terms etc.
    This loan, which was for the purchase of an investment property, was approved in July 2006 and drawn down on 5”‘ September 2006 for €226,400. The loan was to be fixed for 35 months at a rate of 4.55%, and on expiry of the fixed rate, our standard variable interest rate at that time, would be applied. The full facility letter has been enclosed.

    3. What interest rates products were applied to the Complainants’ investment mortgagefollowing the date of draw—down of same?
    Initially the loan was on a fixed rate of 4.55%. This fixed rate expired in August 2009, at whichpoint our standard variable rate applied, which at the time was 4.15%.
    4. Was type of product does the rate of 4.15% relate to i.e. is it a fixed rate product or a variable rate product etc? Similarly, please confirm if the Bank’s 3.4% relates to a variable rate interest rate product? What was the Bank’s variable rate home loan rate applicable to both residential and investment mortgage accounts in August 2009? Why did the Bank fail to offer the Complainants, in August 2009, its then variable home loan rate?
    Please see our opening summary. To clarify, the standard variable rate in August 2009 was 4.15%. However the Bank had previously decided to offer a discount to borrowers whose loans related to their PPR, but not to borrowers whose loans related to investment properties. Senior Council advisesthat this is an ‘entirely legal course of action. The Complainant therefore received exactly what is specified in his facility letter. His payments are calculated by reference to the contractually agreed reference rate in compliance with the applicable contracts. -


    S. The Bank is asked to elaborate on the following statements:- ‘... the Bank introduced a new Reference Rate for home loan borrowers, i.e. those borrowing to purchase their family home known as the ‘Home Loan Rate’ in 2009 and extended a discount to those borrowers who met - the criteria. As your loan did not qualify for that discount the rate applied to your account at the end of the fixed rate period was determined by clause 11.4 of your facility letter until it s closure, and therefore the rate of interest which was charged to your loan was correct. Please detail the criteria which were apparently not met by the Complainants. Similarly, please explain how clause 11.4 operated in respect of the Complainants and the Bank’s interpretation of Clause 11.4? '

    Please see response to question 1. Clause 11.4 of the agreed facility letter states: “Unless a further Fixed Period is agreed in accordance with clause l 1.3, at the end of the Fixed Period the rate of _ interest applicable to the Loan will revert to our then applicable variable home loan rate.” This clearly indicates that the rate to be applied will be determined at the point in time when the event occurs.

    6. Please confirm if the Respondent had only one type of mortgage rate applicable to both home and investment loans when the Complainants’ investment mortgage was agreed with the Bank in 2006? '
    Please see response to question 1. Customers with borrowings relating to Investment properties, and customers with borrowings related to their PPR, both had their interest rates calculated with' reference to the Bank’s variable reference rate namely our “Variable Annuity Mortgage Rate”. This continues to be the case.

    7. What evidence does the Bank have to demonstrate that the rate of 4.15% was the correct interest rate in respect of the Complainants’ investment mortgage account? Why were the Complainants not offered the lower variable rate set at 3.4%? Had the lower rate applied from August 2009 to January 2010, what saving would have accrued to the Complainants’ investment mortgage account?
    Please see our response to question 1. The contracted rate is the Banks Variable Annuity Mortgage rate at 4.15%. Please find detailed below an ‘extract from the rate advertisement in respect of this rate informing customers of the current rate in accordance with our obligations under the terms and conditions.

    For the sake of ‘argument, had the Complainant’s loan been for his PPR, the discounted rate would have been applied and a saving of €819.35 would have been realised.

    8. When did the Bank reclassify investment mortgages and residential mortgages and when were the Complainants advised of this change in name etc?
    This was done in February 2009 and the Complainant was informed of this in writing at that time. '

    9. Under what authority, rule, regulation etc is the Respondent entitled to re-name mortgage accounts? Please state the grounds on which the Bank is entitled to alter the name of the loan. _ Did the Respondent need to seek approval from the Financial Regulator (now Central Bank) before re-naming the mortgage account? Please state the grounds on which the Bank is entitled to alter the rate of interest that applies to the loan.
    The Bank was not required to seek authority from the Financial Regulator in relation to the name change. In essence the loans were re—branded principally for ease of reference for customers and for regulatory reporting purposes. The actions of the Bank have not in any way altered the underlying terms and conditions of the loan agreements between us and the Complainant. All that has happened is that the Bank has, given current economic circumstances, chosen to offer a special discount to its home-loan borrowers. The change in name was necessary following the expiry of the fixed rate period. The name prior to the change reflected the fixed nature of the rate agreement, and the name change at the end of the period clearly reflects the loan type and rate going forward for the remainder of the loan. We are satisfied that in re-branding the loan account we have not altered the underlying terms and conditions of the loan agreement. The loans were given different names principally for ease of reference for customers and for regulatory reporting purposes. We acknowledge that this nomenclature may regrettably have caused some confiision to our customers. All our customers, including the Complainant, continued to have their interest payments calculated by reference to the contractually agreed reference rate in compliance with the applicable contract. As an investment loan borrower, the Complainant was not eligible for the further special discount that National Irish Bank had extended solely to home-loan borrowers since early 2009.

    10. Did the Respondent treat both residential and investment mortgages in the same manner before 2009 and were these two mortgage types subject to the same reference rate? In this regard, were these two aforementioned mortgage types automatically impacted by ECB interest rate changes up to 2009 which is when the Bank states it introduced a new ‘Home Loan Rate’? What interest rates were charged to residential home loan rate mortgages from 2009 up to January 2010 and what rates were charged to investment mortgages over the same period?
    As advised in our response to question 1, both residential and investment mortgages have always been and continue to be, subject to the same reference rate. This reference rate was and remains completely separate from the ECB rate and is not set by reference to the ECB rate (National Irish- Bank is funded by the wholesale markets and not the ECB). All customers continued to have their interest calculated by reference to the contractually agreed interest reference rate in compliance with the applicable contracts. PPR customers were offered and given a special discount rate, which we are advised by Senior Counsel, is an entirely lawful course of action (unless, clearly, if one acted in breach of contract). Please see a comprehensive table below demonstrating the rates from inception of the loan, which clearly shows when the discount was applied to PPR borrowings.

    -11. Had the change in name not have occurred, would the Complainants’ investment mortgage monthly repayments have remained the same when compared to holders of residential mortgage account? Were the Complainants ever advised that it was the intention of the Respondent to change the name of their mortgage account? Please clarify if the Complainants were informed prior to the commencement of the loan that the mortgage could be renamed and a different rate of interest applied.
    The name change is a function of the behaviour of the product. It would be misleading and illogical to continue to identify a loan as a Fixed Rate Loan when the variable period commences, and the name change does not alter the legal agreement in any way. - The question suggests that a different rate is being applied. However this is not the case. The Complainant has had at all times, his interest calculated by reference to the contractually agreed reference rate in compliance with the applicable contract. . The contract between the Complainant and the Bank is as set out in the relevant loan agreement and it is in accordance with these terms that the loan operated since inception although the name by which the loan had been referred to had changed. However the form of the loan as opposed to the name by which it is branded had not been changed. The Complainants’ loan was at all times an Investment Housing Loan. The Complainant is in effect seeking to avail of the discount that National Irish Bank has extended to home-loan borrowers since early 2009 and for which, as an investment borrower, he is simply not eligible.

    12. Please comment on the Complainants assertion that he was advised by the Bank’s Swords Branch that the rate of 4.15% was the only rate available to him and that if he did not accept same, then he could transfer his mortgage to another mortgage provider.
    The Complainant has not stated who in particular he spoke to and we have no record of the conversation. However, the Complainant would have been informed of the Bank’s position, which was that the rate he was entitled to was the standard variable rate as outlined in his facility letter, which is what was being charged. We do not believe he would have been told to transfer his mortgage to another provider. However, under free market conditions he was of course entitled to seek out a different provider if he was unhappy with his mortgage rate, and this was the course of action he chose to take.

    13. Have the Complainants also moved their residential mortgage from the Respondent as a result of this dispute?
    The Complainant did not have his residential mortgage with National Irish Bank.
    Yours sincerely,
    Jennie Power
    Head of Compliance
     
  2. greenoverred

    greenoverred Registered User

    Posts:
    16
    And here is the finding

    Background
    In August 2006, the Complainants took out an investment mortgage with the Respondent. The mortgage was initially subject to a fixed rate for the first three years. The Complainants state that the reason as to why they decided to take out a mortgage with the Respondent was because in 2006, the Respondent applied the same rates to both residential and investment mortgages. On 12 August 2009, the Complainants received a letter from the Respondent (following the expiry of the fixed rate period) advising them that the interest rate applicable to their mortgage was 4.15%. The Complainants state that they queried this rate with the Respondent who allegedly advised them that this was the only rate available to them at that time. On foot of this advice, the Complainants decided on 26 January 2010 to transfer their mortgage to another named mortgage provider. The Complainants state that they have since discovered that the rate of 4. l 5% which was offered to them was an incorrect rate for their mortgage account. In particular, the Complainants state that their mortgage should have reverted to the Bank’s then applicable Variable home loan rate which was 3.4% in August 2009. The Complainants believe that they were overcharged by the Respondent for a period of 6 months i.e. from August 2009 up until January 2010. The Complainants state that had the rate of 3.4% been offered to their mortgage account, it would have negated the need for them to transfer his mortgage to another mortgage provider. The Bank has rejected the . Complainants’ assertions and has stated the following:-‘...the Bank introduced a new Reference Rate for home loan borrowers, i. e. those borrowing to purchase their family home known as the ‘Home Loan Rate’ in 2009 and extended a discount to those borrowers who met the criteria. As your loan did not qualify for that discount, the rate applied to your account at the end of the fixed rate period was determined by clause 11.4 of your facility letter until it ’s closure, and therefore the rate of interest which was charged to your loan was correct. ’The complaint is that the Bank offered the Complainants an incorrect interest rate which compelled them to transfer their mortgage to another mortgage provider which ultimately caused them to incur consequential financial loss. It is further contended that the Bank overcharged the Complainants’ mortgage account for a period of 6 months i.e. from August 2009 up until January 2010.
    The Complainants’ Case -
    The complaint is that the Bank offered the Complainants an incorrect interest rate which compelled them to transfer their mortgage to another mortgage provider which caused them consequential financial loss. It is further contended that the Bank overcharged the Complainants’ mortgage account for a period of 6 months i.e. from August 2009 up until January 2010.
    The Provider’s Case
    The Respondent has refuted the Complainants’ assertions and states that the Complainants were offered the correct rate of interest following the expiry of the three year fixed rate period.

    Finding
    During my investigation I put a number of questions to, and sought certain evidence from, the Provider. The Provider responded fully to my questions. The Complainants were given the opportunity to see the Provider’s response and the schedule of evidence. A full exchange of documentation took place between the parties. In arriving at my Finding I have carefully considered the evidence and submissions put forward by the parties to the complaint. Having reviewed and considered the submissions made by the parties to this complaint, I am satisfied that the submissions and evidence submitted do not disclose a conflict of fact such as would require the holding of an oral hearing to resolve any such conflict. I am also satisfied that the submissions and evidence submitted are sufficient to enable a Finding to be made in this complaint without the necessity for holding an oral hearing. The issue raised by this complaint is whether an incorrect interest rate was charged to the Complainants’ mortgage account which compelled them to transfer their mortgage to another mortgage provider. It is further contended that the Bank overcharged theComplainants’ mortgage account for a period of 6 months i.e. from August 2009 up until January 2010. ' . -

    _ Before considering the substantive complaint, I must draw the attention of the parties to thisdispute to the fact that while reference has been made by the Complainants to a publishedcase study from this Office, this Office does not operate on the basis of precedent and therefore this particular Finding will be considered on its own merits only and not by reference to any other decisions or published case studies which may have been issued by this Office.
    In considering this complaint, I note that on 12 August 2009, the Complainants received a letter from the Respondent (following the expiry of the fixed rate period) advising them that the interest rate applicable to their mortgage was 4.15%. The Complainants state that they queried this rate with the Respondent who allegedly advised them that this was the only rate available to them at that time. On foot of this advice, the Complainants decided on 26 January 2010 to transfer their mortgage to another named mortgage provider. The Complainants state that they have since discovered that the rate of 4.15% which was offered to them was an incorrect rate for their mortgage account. In particular, the Complainants state that their mortgage should have reverted to the Bank’s then applicable variable home loan rate which was 3.4% in August 2009. The Complainants believe that they were overcharged by the Respondent for a period of 6 months i.e. from August 2009 up until January 2010. The Complainants state that had the rate of 3.4% been offered to their mortgage account, it would have negated the need for them to transfer his mortgage to another mortgage provider. Having examined the evidence, I am satisfied that the correct interest rate was offered to the Complainants in August 2009. In support of this conclusion, I have noted that the loan which is subject to this complaint is an “Investment Housing Loan” (IHL), the interest on which was calculated by reference to the Bank’s variable reference rate. Interest on Principal Private Residence loans (PPR loans) was also calculated by reference to the Bank’s variable reference rate. As noted above, the Complainants loan was subject to a fixed rate for a period of three years after which the mortgage was to revert to the Bank’s “variable home rate loan” if a further fixed rate of interest was not offered or applied to the Complainants’ mortgage account. Clause 11.4 of the facility letter governs the- switch from the fixed rate period to the subsequent variable rate period. It is helpful to examine Clause 11.4 which states the following:— ‘Unless a Further Fixed Rate Period is agreed in accordance with clause 11. 3, "at the end of a Fixed Period the rate of interest applicable to the Loan will revert to our then applicable variable home loan rate. ’
    I further note that Clause 11.3 states:-' ‘You may, prior to the expiration of a Fixed Period, request us to fix the rate of interest on the Loan for such further period as you may specijjz (so long as it is a period for which we 'ofer fixed rates on home loans). If we agree to such request (and we have no obligation to do so) the rate of interest applicable to the Loan for the requested Fixed Period shall be ourapplicable fixed home loan rate on the first date ofthe requested Fixed Period or, if amargin is specified in the Schedule, the aggregate from time to time of that margin and suchfixed home loan rate. ’ . 'Clauses 11.3 and 11.4 can be interpreted to mean that at the end of the fixed rate, and where another fixed rate is not applied to the mortgage account, the interest rate to be applied will be the then applicable variable home loan rate. ' _ The Bank has confirmed that the then applicable home loan rate in August 2009 was set at 4.15%. The Complainants mortgage was subject to the same underlying reference rate which also applied to Principal Private Residence loans with one exception which was that the Bank had decided to offer a further discount to holders of PPR mortgages. I am satisfied
    - that the Respondent offered the Complainants the agreed rate which was the Banl<’s then applicable variable home loan rate. The variable home loan rate was also offered to holders of PPR loans but the Bank of its own volition elected to provide a further discount to holders of PPR mortgages which effectively reduced the variable home loan rate for holders of PPR mortgages to 3.4%. There is no evidence before me to suggest that the Complainants, who held an investment housing loan with the Respondent, were also entitled to the additional discount which was offered to holders of PPR mortgages. I am satisfied that the Complainants were charged the correct interest rate of 4.1 5% and that they were not entitled to the interest rate of 3.4% which was only available to holders of PPR mortgages. The decision to offer holders of PPR loans a discount to the variable rate of interest and not to offer the same discount to holders of IHL loans is permissible once the Bank has not -breached its requirement to apply the variable home loan rate to holders of IHL mortgages. It is indisputable that the Complainants were not entitled to the variable home rate of 3.4% and therefore there is no merit to the Complainants’ contention that they were overcharged for a period of 6 months which was the period of time that elapsed between the application of the interest rate of 4. 1 5% and the date on which the Complainants transferred their mortgage" to another mortgage provider. The Complainants were offered the correct rate of interest upon the expiration of the fixed rate and therefore this complaint cannot be upheld. For the reasons outlined above, I am satisfied that on the basis of the evidence before me, that I cannot uphold this complaint.
    Conclusion
    The complaint is not substantiated under Section 57CI (2) of the Central Bank and Financial Services Authority of Ireland Act 2004.
    The above Finding is legally binding on the parties, subject only to an appeal to the
    High Court within 21 calendar days. '
     
  3. Butter

    Butter Frequent Poster

    Posts:
    601
    Greenoverred - firstly thank you for posting all of that.

    NIB's summary of events in their letter (how do I put this?) was somewhat less than factual & should have been challenged.
    In this letter NIB say that in Feb 2009 they decided to apply a special discount to PPR loans (because of hard ecomonic times - very kind of them!) & separated IHL & PPR loans to allow them to do that.
    In reality when they wrote to IHL customers in Feb 2009 to inform them of the name change they said it was done for clarity & that there were no other changes to the account.
    In reality NIB did not apply a special discount to PPR loans in Feb 2009. I would challenge them to show proof of this.
    Did NIB write to PPR loan customers setting out this special discount, the amount of discount, the reason for giving it, how long would it last for etc? Did they take out any advertising space to inform customers that they were being given a special discount by NIB because of difficult economic circumstances in the country? NIB did not do any of this in Feb 2009 & I believe they cannot show any proof of this.
    Instead over the next number of months (and not in one lump sum discount in feb, as claimed) as the ECB cut interest rates, NIB merely applied these cuts to the interest rate for PPR loans but not IHL customers. NIB could only do this because the bank had separated loans in Feb 2009 into PPRs and IHLs.

    Quite honestly that reply from NIB shows me that they are prepared to twist events & timelines in their bid to defend their actions. The bank should be challenged to show evidence of the special discount, how they informed their PPR customers of it & exactly when it began & how much it was. I do not believe that they can show evidence of any of this.

    But I'm sure that PPR customers can show letters from NIB saying that their interest rate is being cut by successive amounts following ECB rate cuts.

    Unfortunately, I think NIB have honed their defence through dealing with these cases. I think there is a flaw in the FO system - precedence & previous cases should be taken into account. And I think greenoverred was let down by the FO in this case because NIB's defence was accepted at face value.
     
  4. twofor1

    twofor1 Frequent Poster

    Posts:
    1,137
    Yet in the Ombudsman’s 2009 summary he states;

    He was of the view also that the Complainants’ original investment mortgage agreement had been fundamentally altered by the Bank’s decision to apply a more favourable interest rate regime to home-loan/residential mortgage borrowers as the Complainants’ investment mortgage was sold to them on the basis that their investment mortgage account would also receive any interest rate reduction applied to the standard variable rate. Whilst interest rate reductions may have been originally aimed at home borrowers, it was nevertheless the case that the benefit of interest rate reductions also had to be passed on to the Complainants’ investment mortgage account as it was subject to the standard variable rate which was the rate to which the interest rate reduction would be applied.
     
  5. Butter

    Butter Frequent Poster

    Posts:
    601
    I believe NIB muddied the waters at the start of their letter in this case by talking about customers with PPR and IHL loans as if they were & always had been separate entities & could legitimately be treated differently. Back when most of us took out loans for investment properties there was no differentiation made & that was what the FO picked up on in the 2009 finding.
    What is different between then & now?
     
  6. DingDing

    DingDing Frequent Poster

    Posts:
    243
    Yes I think that is the key point. And NIB have learned to focus away from that point in their responses. As they are loosing cases they are moving the arguments away from the reasons why they have lost.

    That indicates the value of the forum in focusing complainants into areas that they can win and dilute some of the spin.
     
  7. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    31,557
    Time is running out to take action on this as the 6 years statutory limit expires in February
     
  8. Bronte

    Bronte Frequent Poster

    Posts:
    11,954
    Butter, I think this sumarises exactly what the bank were at. This 'discount' is a total fiction. It was created by the bank in order to allow PPR's to have a lower mortgage and to allow the bank to charge investors more. But they needed to create this scenario to fool the ombudsman. And as we all know, the ombudsman is not on the side of the little guy. People have a very low change of succeeding with his office.
     
  9. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    31,557
    Hi Bronte

    Have you read the thread?

    The little people who argued their case properly have had their complaints upheld!

    And you can see twofor1's analysis here: FSO is much more successful than headline figure of "only 10% upheld" suggests

    Brendan
     
  10. NialloC

    NialloC New Member

    Posts:
    1
    I took out a Variable Home Loan with NIB in 2003 which was subsequently amended to a Variable Rate Investment Mortgage in Feb 2009. I still have the loan with them. Having reviewed my file and if would appear that I may have been overcharged also. Am I now too late to go back and review same with NIB (Now Danske Bank) giving that it is now more than 6yrs on ?