Skipton building society is facing a legal challenge over its decision to ignore a mortgage rate guarantee.
The society – which has just over 100,000 borrowers – will increase its standard variable rate (SVR) from 3.5 per cent to 4.95 per cent from 1 March, leaving borrowers on a typical £150,000 mortgage needing to find around an extra £1,500 a year.
Skipton is not the only lender to announce increases in SVR – six others have done so while the base rate has remained at 0.5 per cent. But it is the only one to break a pledge to borrowers that the rate would never be more than 3 per cent higher than base rate. When announcing the increase, the society claimed it was responding to "exceptional market conditions". Skipton's chief executive David Cutter said: "It is a necessary step".
But the law firm Leon Kaye Solicitors claimed the move may be illegal if the economic downturn is not judged enough to trigger Skipton's get-out clause. The lawyers said: "These 'exceptional circumstances' clauses are normally submitted into contracts to ensure that the lender has an element of control if things turn bad. However, such clauses can fall foul of the Unfair Contract Terms Act 1977."
Leon Kaye has asked Skipton borrowers to contact them if they think they have a claim against the society, but the case could be short-lived, said Melanie Bien, a director of the independent mortgage broker Savills Private Finance. "It all hinges on the definition of 'exceptional circumstances'," she said. "I would have thought this law firm will struggle to successfully challenge Skipton." However, Ms Bien accused Skipton of not treating customers fairly. "Lenders shouldn't offer the guarantee if they can't stick to it."
The Skipton said it had received no approach from the law firm.