Financial Services Authority says Halifax tracker loans must fall in line with bank rate cuts

Published 03rd Dec 2008

The Financial Services Authority said yesterday that more than half a million Halifax customers on tracker mortgages should benefit from further interest rate cuts even though the small print on their loans supposedly prevents them from doing so.

An estimated 550,000 Halifax borrowers with tracker mortgages, which move up and down in line with the base rate, appeared set to miss out on future rate cuts because the small print on their loans allowed Halifax to stop reducing rates once the base rate falls below 3 per cent.

Jon Pain, the FSA's retail market manager, said yesterday that this 3 per cent threshold, or “collar”, could be unenforceable. He said collars should be included in a lender's key facts illustration (KFI) - 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 (CML), 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.”


The Bank of England is widely expected to cut rates again tomorrow from 3 per cent. A borrower with an interest-only £200,000 tracker mortgage at 1 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 3 per cent,” a spokesman said. “We are noting the comments by the FSA and are looking into them.”

It emerged yesterday that the removal of details of the tracker loan collar from the Halifax mortgage key facts in 2005 was the result of concerns that the FSA raised over the complexity of the Halifax's mortgage documentation. The regulator was worried that the 11-page key facts statement was overblown for a document designed to highlight the key elements of the loan, and asked for it to be trimmed back. The collar detail was one of the items removed and relegated into the smaller print of the larger mortgage document.

A spokesman from the FSA defended the request to simplify the documentation, adding: “It cannot be right that to shorten your KFI 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.”

The FSA's intervention on tracker rate collar disclosures emerged as the CML launched a scathing attack on the Government, accusing it of failing to do enough to alleviate the mortgage drought gripping the country.

Michael Coogan, director-general of the CML, said that the Government's response to the plans put forward by Sir James Crosby in a report requested by the Treasury to help to kick-start the mortgage market were “simply not good enough”.

He said that government demands for lenders to pass on interest rate cuts were “short-sighted and counterproductive”, highlighting how savers lost out when interest rates were cut.

He added that mortgage lending would not meet the Government's target of matching 2007 levels next year and could even net at zero or less, with lenders repaying more than was borrowed. He said that the government scheme to rescue 6,000 households from repossession was not ambitious enough.

Source: ' Times '

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