IRHP stands for Interest Rate Hedging Protection. So how can a form of “protection” result in the collapse of a business you may well wonder?
It’s ‘Heads I Win Tails You Lose’ – but from who’s perspective?
The following story was submitted by Jon Welsby, a victim of the banks mis-selling of Interest Rate Hedging Protection.
“Looking back, this is what it must have been like for the Bank who sold me the Interest Rate Hedging Product (IRHP’s) in June 2008. Until recently I found it hard to remember his name as I can only remember meeting him the once at my house when the bank manager introduced him. We drank wine and then went on to the local pub where we drank beer. Yes I used to like a beer or two ! I should have known by the way he climbed into his car to drive home having clearly had too many beers that maybe; just maybe, his intentions were not to provide me with protection but to provide himself with sales income. But I wasn’t sober and was walking home!
Now his name will be etched on my mind forever. As I have spent the last 18 months trying to learn about the product he sold me and why I paid for something that became the reason my property company failed, despite my best efforts and the cost of borrowing falling. Was it my fault?
In 2007 my property company was strong, borrowing with various lenders, including my bank, at rates around 1.5% and 1.25% over base. We had a healthy property portfolio positioned to grow.
My bank knew this so made an offer to lend on all the properties at 1% + BOE. What was I to do? The bank was surely respectable and honest. It wanted to join me on my “journey”. The loan allowed me to repay only 70% from any property sales to pay back to the loan – great stuff I thought.
But as soon as we agreed to do a deal, it happened, I met the bank salesman and it was ‘Heads I Win Tails You Lose’
In April 2008 the bank lent my company the first phase of a £7.5m facility loan; £6m
In April 2008 I was introduced to a ‘Manager of Corporate Sales’ by my bank manager
In June 2008 we were sold a product that would lead to the demise of my property company
Surely I should have known more about this toxic product that the bank insisted I take out?
The bank insisted that I have protection and made it part of my lending ‘security’, but never wrote this down. As my bank manager stated in an email “we need to have some hedging in somewhere to protect the repayment cover. I have already told credit we are on with this!!”
It ended up that credit didn’t like what they insisted I had as I have now learnt that it was indeed recognised as a ‘hard limit’, something that curtailed my ability to borrow. This was evidenced later by the banks lack of appetite to lend in later years. Exactly what I did not want from my bank. We wanted to grow, the bank manager wanted us to grow, our employees and the tax man wanted us to grow!
The Corporate Sales Manager advised that an Interest Rate Hedging Product “(IRHP) would save my property company from financial turbulence and risks as BOE interest rates were set to rise and the world markets were unstable. He sent me clippings by email of ‘warnings’ and graphs showing rates rising. Panic was the message. These were times of great turbulence, times of inflation going through the roof.
It could be a disaster. He was was right, it was, but not for any of the reasons he described ……..
This is a perfect position I thought. A major bank whose accolades illustrate its stance in the world banking market. My bank manager has made an introduction to a Corporate Sales Manager to ensure we are protected regardless of the interest rate movements or market turbulence. Brilliant I thought, build this company to build more new homes, with local employment in the peace of mind and recognition from my bank as they want to be with me ‘for the journey’
What could possibly go wrong?
- In June 2012 the FSA announced its findings into Bank Miss Selling of Interest Rate Hedging Products
- In January 2013 the FSA announced its findings into the pilot review process, confirming that over 90% of the cases under review were miss sold that it would establish Principals for redress
Principals for redress ‘All ‘non-compliant’ sales will be considered for redress. Redress must be fair and reasonable in each case. Redress should aim to put customers back in the position they would have been in had the breach of regulatory requirements not occurred.’
I was Miss Sold an Interest Rate Hedging Product (IRHP)
If you or anyone you know thinks they have been sold some kind of interest rate hedging product I urge you to click the above link and read the documents produced by the FSA. They, alongside the Federation of Small Businesses and Bully Banks, are doing a great job of recognising and addressing the banks misconduct in breaching their regulatory requirements and making ‘non-compliant’ sales.
Redress is due to all who have been miss sold. This could be £’s or £m’s.
As the space is now filling up with various ‘no win no fee’ advisors and claim management companies it is imperative that individual cases are given the best chance to seek redress
We have two clocks ticking – act as soon as you can and seek relevant professional advice.
- An ability to get insurance for any litigation action you may want to take against your bank (no win no fee insurance – known as ATE) at the end of March 13
- An ability to commence litigation within a 6 year period from when the product was recommended; now march 2007. The majority of sales seem to have been made between 2007-08 so ensure you protect your rights to litigate”
About Mark Alexander
Mark and his family have been investing in property since 1989, initially in the Norwich area but more recently across the length and breadth of England. Mark created Property118.com as a social network for landlords with a vision of becoming the UK's best respected online property community. Mark is also a freelance internet marketing consultant to law firms Email - firstname.lastname@example.org