# Ombudsman: No reason to expect that "variable rate" related to a tracker rate



## Brendan Burgess (27 Feb 2020)

This is a very interesting decision from the Ombudsman which will have implications for others.  I attach the decision, but here is the summary 

August 2004 drew down the mortgage on a discounted variable rate 
October 2006 fixed for two years 

October 2008 - borrowers claimed that the bank manager advised them that the 5 year fixed rate of 4.9% was a very attractive rate 

*Borrowers claimed *

They were not offered a tracker in October 2006 or October 2008 
Trackers were available during this period 
And the borrowers had trackers on two other properties 

They were incorrectly advised to enter a 5 year fixed rate 
*Bank said : *


There was no reference to a tracker in either the 2004 mortgage contract or the fixed interest rate documentation in 2006 
By October 2008 they had ceased to offer trackers 
In the original application in 2004, the borrowers had the option of a tracker, but chose the discounted variable rate instead 
The other two mortgage contracts were completely separate and had no bearing on this mortgage 
They denied that the bank manager had advised them to fix for 5 years 
*The Ombudsman ruled *

it was clear in the documentation that, on expiry of the discounted variable interest rate period in 2006, the loan would revert to the “appropriate
variable rate.”

 As a result, the bank was under no contractual obligation to offer them a tracker interest rate on their mortgage loan. 

The fact that the bank was offering tracker interest rates to new or existing mortgage customers, including on the couple’s other properties, did not create an 
obligation to offer a tracker rate in all situations. 

While the Ombudsman accepted that the bank did not include a specific definition of “variable rate”,  in this instance he took the view that there was no
reason for the couple to reasonably expect that the term “variable rate” related to a tracker interest rate, given that their account drew down on a
standard variable rate.


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## Brendan Burgess (27 Feb 2020)

By way of contrast, in the Bank of Scotland case which the Ombudsman did uphold. 


The couple started on a tracker 
They fixed after a couple of years - the documentation said "you will move to the Standard Variable Rate after the fixed rate period"
As the documentation did not specify that they would lose their tracker rate, the Ombudsman directed Bank of Scotland to put them back on the tracker. 
The SVR was not defined in the mortgage contract, although it was defined in the rates sheet and on BoSI's website.


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## Brendan Burgess (27 Feb 2020)

I think that this decision has implications for other borrowers who are claiming that the references in their documentation to "variable rates" could include trackers, because trackers are variable rates. 

It seems to me from this decision, that this line of reasoning will not be enough on its own.   You will need to provide some other evidence to support your view that a variable rate was intended to mean a tracker rate. 

Brendan


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## tnegun (27 Feb 2020)

Would you include the EBS Variable Base Rate in that?


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## demoivre (27 Feb 2020)

Should the thread title not read "  No reason to expect that the "Appropriate Variable rate" related to a tracker rate" ?


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## Brendan Burgess (27 Feb 2020)

Hi demoivre

The thread title is a summary.

Brendan


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## elcato (27 Feb 2020)

demoivre said:


> Should the thread title not read " No reason to expect that the "Appropriate Variable rate" related to a tracker rate" ?


Up until 2009 an SVR tracked the ECB rate. There lies the shambles we have now.


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## demoivre (27 Feb 2020)

Brendan Burgess said:


> I think that this decision has implications for other borrowers who are claiming that the references in their documentation to "variable rates" could include trackers, because trackers are variable rates.
> 
> It seems to me from this decision, that this line of reasoning will not be enough on its own.   You will need to provide some other evidence to support your view that a variable rate was intended to mean a tracker rate.
> 
> Brendan



I agree with this but I'm unaware of anyone , or any threads on AAM , where folks claimed that a "variable rate" meant a tracker rate.


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## demoivre (27 Feb 2020)

elcato said:


> Up until 2009 an SVR tracked the ECB rate. There lies the shambles we have now.



I thought the shambles arose because of vague terminology in mortgage contracts, contrary to a number of guidelines.


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## B26354 (27 Feb 2020)

I haven’t seen anyone on this site claiming that if they only had the term “variable rate” that they should have been offered a tracker.


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## mccoypat94 (28 Feb 2020)

what about prevailing rate?


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## pguyo (28 Feb 2020)

tnegun said:


> Would you include the EBS Variable Base Rate in that?


Thats where the terms are grey.... how grey is up to the ombudmans i suppose....


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## tnegun (28 Feb 2020)

mccoypat94 said:


> what about prevailing rate?


For the AIB guys the clause was "Conversion to Tracker interest rate mortgage loan at the banks then prevailing rates" so there is no ambiguity they are entitled to a tracker, the ombudsman needs to rule on what the prevailing rate should of been.


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## tnegun (28 Feb 2020)

pguyo said:


> Thats where the terms are grey.... how grey is up to the ombudmans i suppose....


Thats what I was thinking definitely not clearly one or the other


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## maccers_85 (29 Feb 2020)

tnegun said:


> For the AIB guys the clause was "Conversion to Tracker interest rate mortgage loan at the banks then prevailing rates" so there is no ambiguity they are entitled to a tracker, the ombudsman needs to rule on what the prevailing rate should of been.


That doesn't leave me with too much hope. How could he determine what it might be?


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## tnegun (1 Mar 2020)

I hoping it will be 1.5% as is the rate that prevailed until AIB changed it in late 2013.


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## peemac (1 Mar 2020)

elcato said:


> Up until 2009 an SVR tracked the ECB rate. There lies the shambles we have now.


Yes and no. But it didn't track the way a tracker Mortgage would track the rate. 

I've had mortgages since 1990, and moved home 5 times until current house purchased in 2005.

So up to the 2005 mortgage, all were standard variable rates or fixed rates that moved back to the variable rate - and it was the same for many years before that too. 

Mortgage rates did move at similar ways to ecb or irish central bank rates - but not always immediately as they must do with trackers, and not always by the exact same amount as a tracker must. 

Some banks tried to hold off as long as possible until media pressure led to the changes. In most cases they announced reductions a couple of days into a new month and to take effect from the following month. 

But yes, they "followed" ecb / cbi moves, but did not track them.


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## B26354 (1 Mar 2020)

peemac said:


> Yes and no. But it didn't track the way a tracker Mortgage would track the rate.
> 
> I've had mortgages since 1990, and moved home 5 times until current house purchased in 2005.
> 
> ...


Peemac- there were 7 ECB base rate changes between April 2004 and March 2008. If during this period your rate changed in line with the ECB base rate immediately following each of these changes with the exact same margin applicable (e.g. ecb +1.25%)...and you were sent a letter immediately after each of these 7 ECB rate changes confirming that your rate has changed because of said ECB base rate change ...and your mortgage contract referenced a base rate...would this rate in your opinion be a SVR or tracker rate?


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## peemac (1 Mar 2020)

B26354 said:


> Peemac- there were 7 ECB base rate changes between April 2004 and March 2008. If during this period your rate changed in line with the ECB base rate immediately following each of these changes with the exact same margin applicable (e.g. ecb +1.25%)...and you were sent a letter immediately after each of these 7 ECB rate changes confirming that your rate has changed because of said ECB base rate change ...and your mortgage contract referenced a base rate...would this rate in your opinion be a SVR or tracker rate?


There were many rate changes before trackers existed and the mortgage rates generally followed those changes fairly quickly.

If a bank did not make a change, the media questioned it and they quickly became uncompetitive and banks generally had a similar margin.

Mortgages were rather boring loans before trackers.


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## B26354 (2 Mar 2020)

peemac said:


> There were many rate changes before trackers existed and the mortgage rates generally followed those changes fairly quickly.
> 
> If a bank did not make a change, the media questioned it and they quickly became uncompetitive and banks generally had a similar margin.
> 
> Mortgages were rather boring loans before trackers.


So a good way for a bank to manage market  challenges such as competition & media pressure around rates was to somehow conflate an SVR & tracker product.


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## Stitcher (2 Mar 2020)

I wouldn't doubt that the tracker emerged as a result of the media attention and some bank deciding that tracking was a good commercial advantage. Who introduced the first 'contractual' tracker? I wonder? And when ?


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## Brendan Burgess (2 Mar 2020)

Hi Stitcher

Trackers were commonplace in the UK before Ireland.

When Bank of Scotland entered the Irish mortgage market, they introduced trackers.   

I am guessing 2001? 

Brendan


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## Megafan (2 Mar 2020)

I imagine trackers were probably the most transparent type of mortgage originally. The banks margin was the banks margin over the ECB and that was that.


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## Brendan Burgess (2 Mar 2020)

Megafan said:


> The banks margin was the banks margin over the ECB and that was that.



The ECB rate was not the banks' cost of funding. So that was not that. 

Brendan


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## Megafan (2 Mar 2020)

Brendan Burgess said:


> The ECB rate was not the banks' cost of funding. So that was not that.
> 
> Brendan


Ah ok. So they could have used cash from other sources (deposits maybe) or other funding at a lower rate so there would be a further margin to the bank within the overall rate charged to the customer?

So they wouldn't be transparent at all then!


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## peemac (3 Mar 2020)

B26354 said:


> So a good way for a bank to manage market  challenges such as competition & media pressure around rates was to somehow conflate an SVR & tracker product.


If you have access to Irish Times archives, then in the property supplement every Friday they published "best buys" and this listed all the available rates from all the lenders that week.
Trackers and Standard variable rates were shown as two different products and the difference between them was usually quite small. Sometimes as little as 0.05% and sometimes they were identical.

Back then, the real advantage of a tracker was that you didn't have to wait a month or two for the banks to pass on rate cuts. As banks tended to act quicker on rising rates, the fact that the rate would rise as soon as the ecb rate changed was not much of a negative.
That was the primary selling point of trackers as the rate difference was negligible.

If you had a time machine and put yourself back in 2004/5/6/7 and without the current knowledge of how valuable a tracker was, no one rate option would jump out at you as THE RATE to go for. - Doesn't matter if you were a first time buyer, a broker or a bank manager as the different rates suited different people at the time


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## Brendan Burgess (3 Mar 2020)

peemac said:


> without the current knowledge of how valuable a tracker was, no one rate option would jump out at you as THE RATE to go for. -





peemac said:


> the real advantage of a tracker was that you didn't have to wait a month or two for the banks to pass on rate cuts.



Hi peemac

I never saw this mentioned anywhere as an advantage of a tracker mortgage. 

There was no need for the "current knowledge". 

It was frequently pointed out on Askaboutmoney since BoSI introdcued them, that tracker mortgages were valuable because the banks could not arbitrarily increase rates.  That was the main advantage. 

Brendan


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## Brendan Burgess (4 Mar 2020)

Hi peemac

You inspired me to start this thread to clarify why people were actually recommending tracker mortgages. 






						What were people saying about trackers in 2005?
					

In another thread, someone said that the advantages of trackers were not anticipated back in 2005. So I went through a few old posts to see what was actually been said.  There are links to threads such as "Is there a catch with trackers?" but those threads are no longer available.  It seemed...



					askaboutmoney.com
				




Brendan


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