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Halifax ordered to allow tracker loans to drop below 3%
JONATHAN PRYNN CONSUMER BUSINESS EDITOR3 Dec 2008
More than half a million homeowners with Halifax tracker mortgages should get the full benefit of any interest rate cut this week despite small print that gives the bank the right not to pass it on, a City watchdog ruled today.
The Financial Services Authority said the Halifax would not be able to enforce the so-called "collar" on its tracker mortgages.
This gives the bank the option to stop passing on interest rate cuts to its tracker customers once base rates fell below three per cent.
The Bank of England is tomorrow expected to order at least a half-point cut and probably a full point reduction in its base rate, currently standing at three per cent.
But Jon Pain, the FSA's retail market manager, said that the collar could be unenforceable because it had not been included in the lender's "key facts illustration" - the mortgage documents given to every borrower. Halifax removed the details of its collar from its key facts in 2005.
Mr Pain told the Council of Mortgage Lenders, the industry body representing the banks and building societies that make home loans: "If it is not (included) you run the real risk of both breaching our disclosure requirements and having an unfair contract term you cannot enforce."
A borrower with an interest-only £200,000 tracker mortgage at one percentage point above the base rate could save more than £80 a month if rates fall by half a point, while a full point cut would cut £160 off their monthly mortgage bills.
Halifax, Britain's biggest mortgage lender, said it was considering its position.
"We will make the decision on whether or not to exercise the option when rates do fall below three per cent," a spokesman said. "We are noting the comments by the FSA and are looking into them."
Many industry experts also believe that Halifax, part of the state-controlled HBOS banking group, wants to avoid the bad publicity that would be generated if it did try to invoke the collar.
Details of the collar were removed from the Halifax key facts because of FSA concerns about the complexity of the Halifax's mortgage documentation. The regulator was worried that the 11-page key facts statement was too unwieldy and asked for it to be trimmed.
The collar detail was one of the items removed and relegated into the smaller print of the larger mortgage document.
A spokesman for the FSA defended the request to simplify the documentation, adding: "It cannot be right that to shorten your KFI (key facts) you take out something which is required under FSA rules. It is a rule that a collar should be included in a lender's KFI."
Despite the pressure on the Halifax, up to 600,000 other borrowers on tracker mortgages will miss out on most or all of tomorrow's expected rate cut.
Nationwide and a number of smaller lenders have collars that are automatically triggered when base rates reach three per cent or 2.75.
These were included in KFIs and are not open to doubt.
Reader views (14)
These statements are unbelievable!
Those that took out fixed rates never in their wildest dreams factored a rapid recession as is being experienced. Try living in the south where the house prices were much steeper than further north. Some of us were relocated and had no choice but to accept fixed rate just to get a roof over our heads.
Your statements need to be fired at the banking sector who now finds themselves in the same boat as the fixed rate clan.
Fortunately, house prices have not dipped as much here down south. So there is a positive for us fixed rate southerners.
- Mike Bat, Salisbury, 11/03/2009 18:57
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It would appear to me that those moaning about being stuck on a fixed rate rather than having the balls and the finance to be able to afford a tracker are simply regretting their decision.
My IFA advised me in December 07 when I remortgaged that rates would go down, not up. I trust my IFA implicitly and took his word for it, coughed up a 2k arrangement fee and got a 0.5% below BOE base tracker.
As a result, my £270k mortgage has now dropped from nearly £1100 per month to £560 and given that Halifax screwed up by removing the collar from the KFI in 05, this looks like it will go down much more given the anticipated 1 - 1.5% drop tomorrow.
Guess what I am going to do with my new found monthly savings?
I don't have much in the way of debts so I will clear the ones that I do, convert my mortgage to repayment taking advantage of the rate drop and spend the rest on the high street therefore doing my bit to prop up the economy (and enjoying it at the same time!).
Moral of the story..... Get yourself sound financial advice rather tha opting for the percieved safe option and follow it. Then you won't be moaning.
- Andy Lang, South Croydon UK, 03/12/2008 21:27
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hello its tough when the interest rates do not drop. I paid in more ways the one when they were in double figures. fixed rate trackers were not an enity.Payment happened or reposessions .Come on folks lets stop moaning. We arew paying less now. Pay off what you owe and see the debt on your home reduce. Interest rates could go up again.If you don<t owe the bank the savings tehy cannot charge interest .
- Anne, fcatford london, 03/12/2008 15:05
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"I think it would be interesting to compare the proportion of repossessions versus different mortgage arrangements. Then we'd see some hard facts."
I agree with Isabel that it would be very interesting.
I would imagine - based on common sense - that it's those who take out a short term rate, be it cap or fix, and who are then confronted with an SVR they can't afford who are more likely to be repossessed. People coming off fixed rates are also finding it hard to re-mortgage as they are trapped in negative or static equity and so don't have access to the 'cheaper' 70-80% LVR mortgages.
I make no value judgment - it's perfectly reasonable to take a fix, just be sure you can afford the SVR too.
Also those on the modern equivalent of the endowment - the interest only - which always sounded dodgy to me - must be in danger or repossession surely?
Yes I am currently smug as I am on a lifetime tracker of BoE + .85% BUT as the rate goes down so does my 77 year old mother's income off her meagre savings. Swings and roundabouts!
- Lewis, London, 03/12/2008 14:53
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Hang on a minute Ian, that's a bit unfair. There's nothing irresponsible about Fixed rate mortgages or tracker mortgages for that matter.
Not everyone on a fixed rate mortgage took one out because we couldn't afford a rate rise. Some of us prefer to know how much money is going out each month, that's all. It aids budgeting which in turn leads to responsible spending habits.
I think it would be interesting to compare the proportion of repossessions versus different mortgage arrangements. Then we'd see some hard facts.
- Isabel, woking, 03/12/2008 13:32
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I have sympathy for anyone with a Halifax tracker mortgage. However some banks, such as Standard Life Bank have not passed on any of the last 150bp rate cut in their Standard Variable Rate to their customers. Yes I do have a Standard Life mortgage and am currently moving elsewhere.
- Paul, London, UK, 03/12/2008 13:11
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Phil...
sounds like you find consumer choice a difficult concept...hey its tough but we make financial choices everyday, whether it be buying or selling an asset, contributing to a pension....it is our responsibility to make the choice, the suppliers responsibility is to be 100% transparent with the facts and possible risks....some choices we get right some not...
- Martin_Clerkenwell, london, 03/12/2008 12:37
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Phil Jones,London UK
Stop moaning you were well aware when you took out your fixed rate that if rates came down your mortgage wouldn't.
I'll have a large drink for you out of all the money i'm saving 
- P I Staker, London, 03/12/2008 12:09
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Phil Jones, when you took out your fixed rate, you were asked your preference.You could have had a tracker if you wished. I supsect you are one of these people who picks rates off the internet because you know better and didn't consult an independent mortgage broker.
More fool you!
- Stewart Robertson, Wimbledon, 03/12/2008 11:54
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Fixed rate mortgages are popular with people who are borrowing the maximum they can possibly afford while betting they will be able to afford more when it comes time to renegotiate. These are the people who, stung by rising costs (Energy, insurance, tax, etc), can no longer afford their maxxed out mortgage and fall into arrears.
If you want to talk about irresponsible borrowing, it's the fixed rate brigade you should be looking at, not those able to afford a tracker.
- Ian, London, 03/12/2008 11:33
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I cannot see how some people believe only those with fixed rates planned for their future and those with trackers did not.
Those on fixed rates gambled on the rates going up or sticking the same and lost, those on trackers took the risk which paid off.
Those on trackers are not receiving any bailouts, they are benefitting from the drop in interest rates. Those on fixed rates are not having to pay any more mortage due to the interest rates dropping, they are just not getting a reduction in payment as THEY chose to have a fixed rate.
If you want a mortgage rate that cannot go up but can drop, get a capped rate, not a fixed.
You make your own choices in life and should not blame others for your poor decisions.
- Tom, Watford (UK), 03/12/2008 11:32
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Phil can you explain in what way it is 'irresponsible of me to be on a lifetime tracker? And how exactly you are paying my mortgage? Do you have children? If so then I am paying your child benefit. How am I benefitting from a government bail out just because my mortgage has gone down? I think you may be the one who doesn't understand money, not me! Maybe you need to see an advisor? If you went for a fixed term low rate then you were gambling on the rate going up - now you're peeved because it is coming down. I chose to go with the ebb and flow of the interest rate so at the moment am benefitting but if and when it goes up again I will be losing. Will you be moaning then?
- Lewis, London, 03/12/2008 11:13
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Why should those on tracker mortgages get a large benefit from the government bailout, when those on fixed mortgages get no benefit whatsoever?? The ones on fixed mortgages are the ones who planned for the future, yet now they are getting penalized in comparison to those who went with tracker (often, interest only) mortgages. Another example of the most responsible part of society paying for the less responsible.
- Phil Jones, London UK, 03/12/2008 10:26
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Maybe I have been naive all these years, but recent events have confirmed to me that banks truly are the enemy of the average British citizen & the whole economy to boot.
- Andy, sussex, 03/12/2008 10:05
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