FSA warns Nationwide & Halifax to ignore collar clause
Dec 02, 2008 | Comments 22
The Financial Services Authority have warned banks and building societies such as Halifax which is part of HBOS and Nationwide that if they use their small print in the terms of their tracker mortgage contracts to avoid passing on this week’s inevitable rate cut they will find themselves in hot water.
Halifax has an option not to pass on any cuts below 3 percent, which would mean if you had a tracker mortgage with a 0.8 percent over base, and the Bank of England Base rate was cut a further 1 percent to 2 percent, Halifax are within their rights to still charge you 3 percent and not 2.8 percent.
Nationwide also had a clause in their tracker rate mortgages that states they will not follow the base rate lower than 2.75 percent. Basically these terms in a contract are called collar rates. Many borrowers were unaware of the clause.
Many economists predict the Bank of England Monetary Policy Committee will cut the rate by as much as 1 percent taking the benchmark lending rate to 2 percent.
Nationwide building society as of yesterday are offering a tracker product with a collar of 1 percent, but before you get to excited the deal is pegged at 1.99 percent above base rate, which would mean if the bank of England cut the rate by 1 percent as predicted you would be paying a rate of 3.99 percent.
Source: Guardian
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Filed Under: Interest Rates • Mortgage News
My understanding of the collar at 2.75% with Nationwide is that the rate I could pay could fall to 2.75%. But apparently the collar means 2.75% + the tracker difference (currently) 0.48%. Meaning my lowest rate is 3.23%.
The collar itself is not misleading it is how they apply it that is.
If you look at your mortgage statement it will clearly say that your collar is 3.23%. I also checked the mortgage document and again it is clear that the collar is 2.75% plus your offset.
Halifax have said they will ignore the collar and pass on the full cut.
If you read the source Guardian article it says, “only … if it is clear and unambiguous to the consumer, and is consistently and prominently spelt out in the initial KFI [key facts illustration] and offer document throughout the sales process”. I must say that in my Nationwide KFI that the collar was apparent when I recently took out there +0.64% tracker (clear is another argument). Still, it would be nice if Nationwide did ignore it and pass it on like Halifax, but somehow I don’t think they will, especially if you look at their new strategically place +1.99% tracker with a 1% collar.
Hi Gary, you are correct. My loss and Nationwides loss too at the end of my term I will switch providers to one without a collar.
A collar in effect means the lower bank rates go the higher the profit margin for lenders.
Interesting – my KFI from Nationwide (From October 2008) DOESN’T mention the collar, but the contract that I signed did….
Alex, you had me wondering if I’d confused my KFI with my contract but I checked the KFI and it’s clearly there on the second page
Drawn up on the 3rd of September 2008.
Also checked my Key Features Document and Contract and its clearly in both (April 2007). Can only hope the FSA put some pressure on. At least there is one saving grace, the Nationwide is a building society so no shareholders will cream off the profit
I feel that I was mis-informed when I signed my new mortgage deal only last month as I was definately not told about the “Collar” and if I had known I would have moved my mortgage to another lender
nationwide never mentioned to me about the 2.88% collar i have on my tracker….pure greed!!!!!!!!!!!
Looks like they’ve agreed not to enforce the collar, but interesting that not all KFI’s are the same!
I have just heard on the news that Nationwide are not going to enforce the collar on their tracker mortgages. If this is true I can only greet it with surprise and joy. Well done Nationwide.
This is from the BBC website
Initially, it seemed that customers on tracker deals with the Nationwide would see only a 0.25 percentage point cut in interest on their repayments.
But late on Thursday the UK’s biggest building society said it was passing on the full one percentage point cut to existing tracker customers.
Graham Beale, I love you. From
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/3551904/Interest-rates-cut-Nationwide-waives-collar-for-all-tracker-mortgage-customers.html
“Graham Beale, Nationwide’s chief executive, said: “This condition on our tracker mortgages has been a feature of them for the past four years. It is clear, fair and reasonable that in the very challenging financial environment that many people are experiencing, waiving the floor in this way is the right and proper thing to do.
“As a mutual organisation, we are able to support our tracker borrowers in times of difficulty. While we were completely confident that the tracker floor was an enforceable condition, we have decided not to enforce it. Borrowers on our BMR are already benefiting from a rate which has been consistently lower than the average SVR on the market and, following the changes we’ve announced today, Nationwide’s standard mortgage rate will continue to be the lowest among high street lenders.” “
I second that, well done Graham Beale it has restored some of my faith in the banking system however, the rest of the bankers have got a long way to go….
Yes, good stuff, but what about next time? I was kind of looking forward to seeing what they made of my collarless KFI!
Just heard that Nationwide will not enforce the Collar. Once again nationwide comes up trumps. Well done
Alex, given that they haven’t enforced it this time i think they would struggle to ever enforce it now
That’s interesting. I’d have thought they could pass this one off as a “gesture of goodwill” but if the rate fell to (say) 0% would baulk at an effective rate of as little as 0.29%. Still, fingers crossed…
There was a time when i had a Nationwide Tracker that tracked below the base rate. There has been talk in the press that if interest rates went below .5% some customers would recieve interest!! Not sure what the deal is or who its with.
U-turn by Nationwide??
http://www.timesonline.co.uk/tol/money/property_and_mortgages/article5430130.ece
“Nationwide, Britain’s biggest building society, will not pass on any further cuts to the Bank of England base rate to customers with tracker mortgages, The Times has learnt. “
I suspected that might happen after the last rate change i received a letter and it said they resrve the right to impose the collar in the fututre
Time to write and suggest that this shouldn’t be done to those whose KFI’s didn’t mention it….