COURT OF APPEAL UPDATE – West Brom Tracker

Article from the FT today:
"A group of landlords locked in a legal battle with West Bromwich Building Society (WBBS) over an increase in their tracker mortgage rates claimed borrowers would be “astonished” if they really knew the terms of their contracts, a court heard yesterday (28 April)
Mark Alexander, who runs Property 118 Action Group, is representing 350 buy-to-let landlords who have accused the building society of illegally increasing the interest rate on their mortgages by nearly 2 per cent in December 2013.
Landlords claim the tracker mortgages were sold on the basis the interest rate would be fixed to the Bank of England’s (BoE) base rate, which has remained at 0.5 per cent since March 2009.
But the building society said clauses in their standard terms and conditions allowed it discretion to change the rate to reflect market conditions, even when the Bank of England’s base rate remained fixed.
Mr Justice Teare sided with the lender in a ruling at the Commercial Court in January 2015, but Mr Alexander won the right to appeal and has raised more than £500,000 for representation as the case continues.
The High Court heard the generic terms and conditions West Bromwich referred to were “inconsistent” with the particular terms agreed in the offers of tracker mortgages.
Michael Ashcroft QC, for Property 118 Action Group, said: “It clearly states that the rate shall be the same as the base rate plus 1.99 per cent, and it therefore in my submission defines the only circumstances in which the rate can be varied and also provides when and how such variation is to take place.”
He continued that given the clear terms of the offer of loan, this mortgage should not and cannot be interpreted as one that in effect provides the rate of interest after the fixed-rate period will be whatever the respondent decides it should be.
“If you said to a reasonable borrower this is what this contract means, in my submission, the borrower would be astonished by that result.”
If you said to a reasonable borrower this is what this contract means, in my submission, the borrower would be astonished by that result.
Michael Ashcroft QC
Mr Ashcroft said that the particular “bespoke” terms in the tracker mortgage contracts should be given “greater weight” than the standard terms and conditions, which apply to a range of deals including standard variable rate mortgages.
“If you think there is some inconsistency, even a small one, then you should give greater weight to the bespoke, specific clauses,” he stated. “If there is an arguable inconsistency as the judge [Mr Justice Teare] found then that is fatal for the respondent on this issue.”
Mr Ashcroft told the court if West Bromwich is allowed to vary the interest rate at any time, it “essentially deprives the contract of any tracker element whatsoever”.

All sounds good mark.I wish all those involved a successful outcome.
I have one question..and i guess many others reading all this do...what happened at the earlier judgement....what was said / "seen" by the first judge?? what was there attitude/comment??? The case seems plain enough and clearly was to the appeal judges.So it puzzles me.
Finally i would have thought that if a contract is so constructed as to clearly give the "customer" a false impression of its terms ( obscure small print for example in complete opposite terms to the main product description and sales "gummphh"...)..then that in itself would be enough to win such a case.....Id be very surprised if there was no case law to that effect somewhere as a major purpose of any contract is surely to plainly describe the situations and contingencies that might affect its future application ??...anyway id be interested on the comments/attitude of the first judge mark. In any event well done to you and all that have fought it.

Reply to the comment left by "michael fickling" at "29/04/2016 - 15:16":

It's all very technical Michael and I am not as good at explaining it as the legal team at Cotswold Barristers or Michael Ashcroft QC. The judgement will, I am confident, be very clear and will explain in detail why our barrister felt the original judge was wrong.

Meanwhile there are several completely independent sets of lawyers views on the topic if you search Mark Alexander vs West Bromwich mortgage company via Google. One you get past the first few pages of news articles you will begin to find them.

Perhaps Mark Smith from Cotswold Barristers may also wish to post links to opinions expressed by other lawyers and professors of law?

I stand to be corrected but I have yet to read an article from a single credible legal source which sides with the original judgement.
.

Given how much West Bromwich was losing before it imposed this rate rise, is it likely to go skint if it loses the case?

It begs the question how did its Board allow these loss making loans to be written? Was it just incompetence or more than that?

Maybe there is a similar case possible for savers to challenge how incompetent at pricing loans / risk the organisation was in this episode?

Reply to the comment left by "Jon Pipllman" at "29/04/2016 - 18:06":

Hi Jon,
Yes, it is one of the great mysteries why, between 2001 and 2008 especially so many lenders wrote lifetime BOE linked tracker deals at such low margins on buy to let loans in particular, but also lots of residential loans.
That is their problem though - and yes, this could make West Brom need to be rescued.

Reply to the comment left by "Jon Pipllman" at "29/04/2016 - 18:06":

John, Many lenders over the years have predicted where rates would be due to overall economic picture and as a rule they have always made money ,had the 2008 financial worldwide crash not taken place or they new it was going to happen they of course would have bailed out of these type of loans at the outset. The initial offer of a 25 year B.B.R.loan plus margin is perfectly normal but due to the crash it is clearly unsustainable and now the MORTGAGEES should be reaping the rewards. Had it stayed pre 2008 then the WEST BROM would be creaming around 7%-7.5% of me and their decision making skills would have proved right. Now where did I put that CRYSTAL BALL, I might need it again .

The crash was unprecedented, but credit squeezes have happened before, so West Brom and others should have planned for that (i.e. high funding costs relative to central bank base rate) when they set rates.

Still, this is not our problem, it's theirs, (or at least it will be, if the court makes the correct and fair decision).
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Reply to the comment left by "Jon Pipllman" at "29/04/2016 - 18:06":

@John Pipllman
WBBS's problem in 2008 wasn't that they weren't making money on their pre 2008 BTL tracker loan book - they were, due to their relatively low operating cost base. For them, it was more a case of they weren't attracting enough deposits from savers (monies they could intend lend on to borrowers) due to the low interest rate they were only able to offer to depositors. They then came up with the "ingenious idea" that if they raised margin on some of the Buy to let (BTL) accounts on their books, focusing specifically on mortgage account holders with multiple properties i.e. four or more, they'd get away with the increase without too much fuss as such account holders probably won't mind too much; given that BTL mortgage was (and it still is) unregulated and was unlikely to be an issue with their then regulator, the Financial Services Authority whose mantra at the time was "treating customers fairly".

Unfortunately the plan back fired; thanks in part to the legal challenge of Mark Alexander & others. As a good old English adage says, "the road to hell is oft paved with good intentions".

The ultimate outcome of this case could create an interesting judicial precedent which may either strengthen the position of mortgage customers of Banks & Building Societies or give lenders even stronger and dangerous powers. Let's hope the former.

Although rates obviously fell dramatically later on, when we first took our two mortgages our with West Bromwich in 2006 they were at much higher rates than a lot of similar deals as they were linked to Euro Libor. We paid well over the odds for the first 5 years on these mortgages. It came as a short term relief when we had a year or two of such low rates from 2011-2013....only to have them taken away again in December 2013 when the West Bromwich decided to "re-write" their side of the deal with their spurious hidden clause.

Reply to the comment left by "Peter & Di Cole" at "29/04/2016 - 20:00":

Hi Peter and Di,
I know, I was aware of that. I too took a high rate for 2 years on a C&G tracker in 08 and 09 to get what followed - a lifetime cheap tracker.
It is a good point but was not made in court because sadly it has no relevance to the case - all the discussion was focussed on the contract itself.
But yes, it does make what WB did later especially galling.