Now I’m worried Birmingham Midshires will raise their Tracker margins

Now I’m worried Birmingham Midshires will raise their Tracker margins

16:40 PM, 7th October 2013, About 10 years ago 17

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I’ve been following the news on this site concerning West Bromwich Building Society’s increase in Tracker margins and the Class Action. I thought I would check through our ‘Lifetime Tracker’ mortgage offer from Birmingham Midshires. I was in for a shock.

We’ve loved our trackers from Birmingham Midshires (BM) and have been enjoying rates less than 0.5% above the Bank of England Base Rate, which the ‘Illustration’ document reported would last ‘For Term’. Of course, we paid a handsome arrangement fee to secure the rate. The tracker margin seemed unchangeable, but West Bromwich Building Society’s move to increase their tracker rates suggests that anything is possible. Birmingham Midshires BM Solutions

The mortgage offer from BM in October 2006 does say “The mortgage will be charged interest at: a variable rate which is 0.4% above the Bank of England Base rate, currently 4.75%, for the term of the loan..” The accompanying Special Conditions do not seem to mention interest rates. It was the Standard Offer of Advance Conditions (2004) that contained the shock. Under the section ‘Interest’ it states that

“Unless you have a fixed rate mortgage …… we may change the interest rate payable on your loan at any time for any of the following reasons:
(1) to reflect changes in market conditions outside our control
(2) to reflect changes in the cost to us of raising the money we lend to customers:
(3) to reflect changes in general lending practice by other major lenders (including the terms on which mortgages are offered by them);
(4) to maintain or improve the general market position of our products in all areas of our business;
(5) ……….”

So BM can change the interest rate almost at their whim? In particular reason (3) is scary if West Bromwich and the Bank of Ireland get away with changing their tracker margins to BTL customers.

The text seems strange to me to describe their freedom to change a tracker margin. It seems to be the considerations for changing a traditional Standard Variable Rate of a mortgage. If it related to a Tracker margin I would expect phrases like ‘exceptional circumstances’ to be used. Also why does it refer to the interest rate rather than the more relevant tracker margin? The obvious reason to change the actual interest rate is to track a BoE base rate change, but this is not included. Why?

(The accompanying General Mortgage Conditions 2004 booklet merely refers to the ‘offer document’ on changing interest rate.)

A further confusion arises because there is no text that I could find which explains which of the various documents take precedence. The odious Standard Offer of Advance Conditions started with the instruction to “read them in conjunction with ..” the other documents and then the statement “Together these form the offer letter ..”.

Other Property118 posts suggest that West Bromwich had an even more messy set of documentation for the tracker offers which are now being changed. For example, they didn’t refer to their special conditions booklet, which BM got right in my case.

So I’d guess BM are waiting and watching on the outcome of the West Bromwich’s move.

Are you worried as well? I have contributed to the funding of the Class Action campaign despite not having any West Bromwich or Bank of Ireland mortgages.

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Andy Bell

17:30 PM, 7th October 2013, About 10 years ago

I think you are right to be worried!

Mark Alexander - Founder of Property118

17:35 PM, 7th October 2013, About 10 years ago

Me too

Andrew Bird

18:07 PM, 7th October 2013, About 10 years ago

I have had difficulties with Birmingham Midshires before in a very similar way. When the bank rate was around 4% I obtained a tracker mortgage with a rate of 2% below bank rate for the first two years then 2% over for the rest of the term. When the bank rate went to 0.5% the interest should have been negative, i.e. they pay me. I repeatedly asked where in the contract any mention of interest being unable to go negative. I failed to get any response. They kept ignoring the question. It seems that the normal rules of mathematics do not apply to building societies! Or perhaps they just don’t understand basic maths at all, which is why they are in this mess now!

Seething Landlord

18:11 PM, 7th October 2013, About 10 years ago

Based on the wording quoted it seems clear to me that your interest rate is in fact fixed at 0.4% above BBR - it is only variable in the sense that it will vary in line with base rate - so you have a fixed rate mortgage. But in the current "Alice in Wonderland" climate where financial institutions seem to think that words mean whatever they want them to, who knows what they might try?

Vanessa Warwick

18:51 PM, 7th October 2013, About 10 years ago


A pragmatic response for you:

Real problems can always be solved, its only the imagined ones that appear insurmountable.

I can't recall who said that quote, but it has helped me a great deal over the years.

I have found it a complete waste of energy and brain power to worry about something that has not happened yet. Focus on the now and deal with the real problems.

The fact is that interest rates ARE going to go up, when the BOE base rate rises!

That is why you should focus on what you can do NOW to protect yourself ... mend the roof while the sun is shining.

This post might give you some pointers:

If you look on Page 3 of the thread, you will find that I actually reveal a proven strategy to get your BMS interest rates LOWERED!

Knowledge and action can overcome most problems!

Mark Alexander - Founder of Property118

19:09 PM, 7th October 2013, About 10 years ago

Reply to the comment left by "Vanessa Warwick" at "07/10/2013 - 18:51":

Hi Vanessa

I suspect the purpose of Ed's post is to rally support for the Class action and the associated marketing fund.

Whether we are affected by West Brom or BoI is irrelevant, if we all wait for all of our lenders to do this before we take action it will be too late.

Fortunately, a lot of very sensible and forward thinking folk have recognised the potential threats to their business models beyond the BoE rates increasing and are not burying their heads in the sand simply because their lender(s) have done the foul deed of increasing their tracker rate margins YET!

What action are you taking to protect your business against your lenders doing this to your mortgages Vanessa?

Ed Atkinson

21:15 PM, 7th October 2013, About 10 years ago

Yes Mark, you've rumbled me!

I agree, it's vital to fight now rather than let this escalate. As I see it, paying some money into the Class Action fund is really like an insurance policy to help protect my low tracker payments with both BM & Mortgage Express.

Vanessa – most of your 6 ways to future-proof your property portfolio make sense in the context of a risk of rising interest rates …….. except borrowing more! (Number 3). I have concentrated on the 2nd one: build a cash buffer.

Has there been a discussion here or on Property Tribes on the minimum size of a cash buffer? It would make a good thread. I remember a Money Centre seminar in about 2005 mentioning £25K, which I’d say is too low for even a small portfolio. Actually, the seminar was very valuable for us, we more than doubled our portfolio.

[PS Vanessa ,the BM trackers in question are indeed the ones you mentioned in your 2nd PT link: “older loans enjoy very low rate trackers”. Re-negotiating the rate is the last thing I want to do.]

Matthew James

21:17 PM, 7th October 2013, About 10 years ago

Hi All,

I've got a BM mortgage on my domicile (OK, it's not a BTL, but I also have a similar one with the Bank of Scotland). I too enjoy a great interest rate which is 1% above BoE base rate. I'm concerned that there will be a ground swell of activity which encourages other lenders to follow suit and before we know it, it will become de facto for every lender to execute the minute small print and stitch all their customers whenever it suits them.

I say this needs to be nipped in the bud sooner rather than later.

Correct me if I'm wrong, but this feels like mis-selling in the same sense as the disastrous tactics of PPI? Since when did any of us have it explained that the capped interest above BoE is not actually capped and subject to the whims, and extraordinarily, can influenced by competitor lender activities?!

I for one would testify that the financial advisor explained that the capped rate was fixed above BoE for the term of the loan, and not subject to change. Given that this contradicts the small print, this alone should manifest as a selling misdemeanour under legal scrutiny?

Ed Atkinson

21:41 PM, 7th October 2013, About 10 years ago

Reply to the comment left by "Matthew James" at "07/10/2013 - 21:17":

Matthew, I agree with most of your points and all of the sentiment. Sadly, I think landlords probably won't be covered by the consumer protection arrangements behind the PPP payouts. We're considered businesses I believe.

Meanwhile, the brokers and financial advisors won't have deep pockets to provide 'windfall payouts'. I wouldn't blame them too much anyway, would they really have known that the bank's tracker promise was dodgy? Mark might have something to report here!

Mark Alexander - Founder of Property118

22:18 PM, 7th October 2013, About 10 years ago

Reply to the comment left by "Ed Atkinson" at "07/10/2013 - 21:15":

Hi Ed

You will recall from the workshop presentations I delivered at TMC that I recommended a 20% liquidity reserve, i.e. 20% of total debt should be held in liquidity as a reserve.

There have been several discussion on both forums about that which I have join in with over the years and also details on The Money Centre website. Sadly I can't easily find those discussions as many of them were spin off from other strategy based discssions.

I did, however, document my entire strategy in the Advice section of this website. plenty bedtime reading for you there 🙂

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