Tracker Mortgages

May 06, 2014 tags: Blog, Legal Articles

Tracker mortgages were designed to give borrowers confidence and a measure of protection from the whims of lending institutions by pegging variations in interest rates to an independent base rate such as the Bank of England base rate LIBOR (London Inter Bank Offered Rate). These rates reflect a market consensus rather than the specific needs of the individual lender, and so the customer is more likely to find them competitive. Tracker MortgagesAs a result of two significant factors, both banks and customers are re-evaluating thousands of these deals. The first factor is the historically low base rate, which has remained at 0.5% for over 5 years. This has led many institutions to seek to pull out from contracts that cap the rates they agreed to charge to a certain percentage above base. A significant number of these lenders did not protect themselves by placing a floor or collar on the base rate before it could abandon the agreed premium over base. As a result, many thousands of customers have either enjoyed the fruits of their foresight, or been forced to pay (or fight against paying) interest that has been increased by a lender seeking to utilise often obscure contractual provisions to renege on the deal. If you think this can't happen please take a look at the landlords forum. Over 6,700 borrowers had their tracker rate margin increased by 1.9 % per annum by the West Bromwich Mortgage Company. Mark Smith of Cotswold Barristers is taking a claim on behalf of this campaign group to the Commercial Courts. Nearly £500,000 has been raised towards costs and the case is believed to be the UK's largest ever representative action handled by a Direct Access Barrister. Losing the case will cost the building society  approaching 20 million pounds per annum over the life of these mortgage contracts. The second factor is the market manipulation in fixing or rigging the LIBOR rate. LIBOR is the London Interbank Offered Rate, at which banks offer to lend market-sized amounts of money to each other. Each member bank submits its rate, and the consensus rates are published at 11am daily. Various banks, including Barclays, Deutsche Bank and RBS, have admitted that their dealers submitted false or manipulated rates to suit their own needs at the time. Examples would be to suggest the submitting bank had greater liquidity than was the case, or, more pertinently, where the profitability of financial products would increase if the rate was higher. Barclays have settled a case brought against them in the Commercial Court, where the customer was to argue that a swap deal where the rate was LIBOR pegged was unenforceable by the bank because of their illegal conduct in market manipulation. The bank settled the case before this point was ruled upon, but there are still cases to be heard involving DB and others where the same question will have to be answered. Cotswold Barristers are ready to advise and represent any customer caught by the fallout from either of these issues. [gravityform id="1" name="Contact Us:" title="true"]

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