Danske Bank: Possible Increase in Tracker Rates

[ronaldo]

There are a lot of mortgages on Danske's books at extremely favourable tracker rates. In general, the terms and conditions specify two things:

• Customers who let out their property will be moved to an investment rate;
• The bank can change the rate if the LTV increases above 80%

To date, Danske have not been enforcing the 80% condition and they are also aware of BTL properties on trackers that they have not yet taken action on - they are aware of some through things like cancellation of TRS and supply of insurance policies for 'landlords insurance'.

In the UK, Bank of Ireland purchased the Bristol and West book of trackers many years ago and, this year, enforced a condition on the lifetime trackers that allowed them to increase the rate at which it tracks:

if we believe that the increase or reduction is necessary to maintain the viability of our business following a serious adverse change in market conditions or in the relationship between the base rate and the rate which we pay on the funds we raise for use in our mortgage lending business;

With this in mind, what are the chances that a company that purchases the loan book from Danske will enforce the conditions that Danske hasn't enforced already, probably due to the potential media backlash.

 

[ronaldo]

For what it's worth, Bank of Ireland still trade in the UK under both the Bank of Ireland brand and the Post Office brand. With the Post Office brand in place, and many people not realising that they are one and the same, Bank of Ireland probably didn't care too much about the media backlash when they increased their tracker rates by a whooping 2.74%.

 

[ronaldo]

If memory serves me correctly, I believe there was a condition on Danske tracker mortgages that allowed holders to carry out a re-valuation of property to move to lower LTV's. However, I don't think the bank anticipated the falls we've had and, therefore, there was no such condition that allowed the bank to initiate a re-valuation.

With this in mind, it's probably really difficult for the bank to enforce the condition regarding the LTV increasing beyond 80% as they'd have a tough time proving it. They can't simply use your purchase price together with the house price index falls over the years because you could counter-argue that you've done many home improvements in over the years.

I'm kind of having doubts about my LPT method of payment which has been set to come out of my Danske account as a single debit authority next March. It's not outside the realms of possibility that the Financial Regulator would accept the figures taken for LPT from Danske accounts as valuations for the purposes of calculating LTV ratios and leave it to the homeowner to prove otherwise.

 

[Buddyboy]

I'm kind of having doubts about my LPT method of payment which has been set to come out of my Danske account as a single debit authority next March. It's not outside the realms of possibility that the Financial Regulator would accept the figures taken for LPT from Danske accounts as valuations for the purposes of calculating LTV ratios and leave it to the homeowner to prove otherwise.

If that comes to pass, then I'm damn glad I upped the Revenue estimate of my property valuation to a more realistic figure.

Maybe my honesty will pay off.

 

[ang1170]

If memory serves me correctly, I believe there was a condition on Danske tracker mortgages that allowed holders to carry out a re-valuation of property to move to lower LTV's. However, I don't think the bank anticipated the falls we've had and, therefore, there was no such condition that allowed the bank to initiate a re-valuation.

With this in mind, it's probably really difficult for the bank to enforce the condition regarding the LTV increasing beyond 80% as they'd have a tough time proving it. They can't simply use your purchase price together with the house price index falls over the years because you could counter-argue that you've done many home improvements in over the years.

This scenario (changing the LTV rate) crossed my mind some time ago, when values started to slide. Although I'm no legal expert, my reading of the agreement is similar to yours: there's no provision for the bank to initiate a change, no matter how much information is out there.

 

[twofor1]

With this in mind, what are the chances that a company that purchases the loan book from Danske will enforce the conditions that Danske hasn't enforced already, probably due to the potential media backlash.

Danske have said they are not selling their loan book, but of course that does not mean they won’t do a u turn on that tomorrow, however in this case it might make sense to keep it themselves as they are maintaining a presence here for business customers, existing loan repayments could be collected by this arm, or Danske up north who already look after a lot of the administration on southern accounts, the losses would probably be far less that way than having to sell their loan book at a massive discount because of the large amount of low trackers it holds.

Danske’s T&c’s for LTV Trackers does clearly state that they reserve the right to convert the loan to standard variable if at any time the LTV goes above 80%, admittedly it does not say how they would determine LTV at any time. I think the possibility of this clause been enforced cannot be ruled out particularly now as you say they will no longer be concerned about good will or media backlash. Danske now have very little to lose and an awful lot to gain with this approach.


We have seen how Danske operate, If they decide to go this route and let’s hope they don’t, It will not be the slightly above or arguable cases they will look at, many of their low trackers must have LTV’s of over 100%, some way more. They will not ask permission, the first these customers might hear about it is a letter saying they have implemented this change in line with the T&c’s and your new repayment is €XXX, you have no option but to pay while you follow the complaints procedure to the Ombudsman or the courts, when you get there I wouldn’t be sure that many of these customers would be successful as unarguably LTV’s in many cases are way higher than they should be to avail of the low tracker rates.

Same applies to PPR’s on low trackers that are rented, just because they might have chosen not to notice in the past doesn’t necessarily mean they will continue not to notice.

 

[MrEarl]

Danske have said they are not selling their loan book, but of course that does not mean they won’t do a u turn on that tomorrow, however in this case it might make sense to keep it themselves as they are maintaining a presence here for business customers, existing loan repayments could be collected by this arm, or Danske up north who already look after a lot of the administration on southern accounts, the losses would probably be far less that way than having to sell their loan book at a massive discount because of the large amount of low trackers it holds.

Danske’s T&c’s for LTV Trackers does clearly state that they reserve the right to convert the loan to standard variable if at any time the LTV goes above 80%, admittedly it does not say how they would determine LTV at any time. I think the possibility of this clause been enforced cannot be ruled out particularly now as you say they will no longer be concerned about good will or media backlash. Danske now have very little to lose and an awful lot to gain with this approach.


We have seen how Danske operate, If they decide to go this route and let’s hope they don’t, It will not be the slightly above or arguable cases they will look at, many of their low trackers must have LTV’s of over 100%, some way more. They will not ask permission, the first these customers might hear about it is a letter saying they have implemented this change in line with the T&c’s and your new repayment is €XXX, you have no option but to pay while you follow the complaints procedure to the Ombudsman or the courts, when you get there I wouldn’t be sure that many of these customers would be successful as unarguably LTV’s in many cases are way higher than they should be to avail of the low tracker rates.

Same applies to PPR’s on low trackers that are rented, just because they might have chosen not to notice in the past doesn’t necessarily mean the will continue to not notice.

Hello,

I've spoken to some people "in the know" who tell me some of Danske's mortgage paperwork is not worded well enough, to permit them a free hand on changing the LTV Tracker Rates - although this may be dependent on the individual paperwork inspected, as most Bank's reviewed and updated their documentation from time to time.

All that said, they'd struggle to get permission to put valuers into peoples houses, would have numerous challenges to the valuations prepared given one valuer may have a diferent view to another etc.

My bet is they'd draw more legal rows on themselves than anything else, so while in wind down / exit mode, they'd be far better off staying a million miles away from this hornets nest.

One might look to how other Bank's who provide Tracker mortgages on historically low LTV based rates for precedent also ....

 

[Codogly]

Any ideas when Danske are likely to show their hand on Mortgages ... i think they will administer the onwinding of their mortgage book themselves and they might well attempt to force the LTV Clauses in the contracts on some/ most customers. (That could get very messy for them if thats the course they take).

 

[MrEarl]

.....and they might well attempt to force the LTV Clauses in the contracts on some/ most customers. (That could get very messy for them if thats the course they take).

Why both yourself and others here are thinking along these lines is beyond me .... they would be dragged through every Court in the land and probably to the EU thereafter if they even tried. Danske are not stupid enough to start a war they cannot win, not least when they are in the process of a retreat .....

Danske want out, expect them to try and sell the residential loan book in a job lot at some future point and nothing else, is my view.

 

[PadKiss]

Agree fully here with Mr Earl it would be great for the legal profession though

 

[Luternau]

Me too. In fact the OP practically shot the notion themselves in their 3rd post.

 

[Codogly]

While i agree that Danske could be opening up a can of worms by persuing the LTV Clause ...i just cant see them agreeing to the full extent of losses that they IMHO are likely to incur if the try and sell the existing Tracker Loan Book anytime soon. Realistically what % lost would the have to take right now in selling that loanbook with the Best Tracker Rates in the business...? ... only buyers interested would be those looking for a massive discount guaranteeing them a return after writedowns and defaults.

 

[twofor1]

Why both yourself and others here are thinking along these lines is beyond me .... .

Hello Mr. Earl,

Some are probably thinking along these lines because;

It would be hugely beneficial to Danske to have more of its loan book on standard variable rates rather than low tracker rates.

The T&c’s for these low trackers clearly allow for this change should the LTV go above a certain point at any stage.

Many of Danske’s customers no longer have the required LTV to qualify for their low tracker rates.

Just because to date they have not enforced this condition, does not mean they never will.

they would be dragged through every Court in the land and probably to the EU thereafter if they even tried..

Why ? The T&c’s allow for this change if the LTV goes above a certain point at any stage.

Should this matter come before the courts or the Ombudsman surely the deciding factor in any such case would be, does the customer have the required LTV or not, I think this would be easily established.

Some might argue that their home is worth more for various reasons, fair enough, but those whose LTV is way above the required level would not have a good case.

Danske want out, expect them to try and sell the residential loan book in a job lot at some future point and nothing else, is my view.

And what if Danske do sell and run, who’s to say the new owner of these loans won’t enforce the LTV condition ?


I’m not saying the LTV condition will definitely be enforced, you might well be right with your view. But for the above reasons I don’t think anyone can say it definitely won’t ever be enforced.

 

[Codogly]

While we are on the subject of current LTV % ...does anybody know how exactly NIB/Danske calculate the interest rate margin which they add to the ECB rate to get your overall Interest Rate. My Tracker is ECB + 0.58% ... for the life of me i have know idea how they arrived at that %.
My starting LTV 76.66%.

Any ideas ?

Thanks

 

[ang1170]

The T&c’s for these low trackers clearly allow for this change should the LTV go above a certain point at any stage.

It most certainly isn't the case that the T&C "clearly allow".

There is a one-sided clause that says "you may request us to renegotiate....your LTV..." etc. etc.

However, there is no such clause allowing the bank to do the same.

As I mentioned before, I'm no legal expert, but from my reading they'd have a pretty tough time arguing that they could arbitrarily change the margin, based on a change to the LTV.

It would be interesting to get a legal opinion on this, but I suspect the bank's own lawyers have already given their opinion on it: you can be sure if it was clear-cut they would long since have enforced a change.

 

[twofor1]

Hi ang1170,

I hope Danske never attempt to change tracker rates to variable rates because of the LTV clause or for any other reason and, if they do ever attempt it, any one affected should fight it vigorously. I just don’t think it can be ruled out.

I am no legal expert either but to me they appear to have the right to make this change if the LTV goes above 80%. The exact wording is;

‘’In the event that your LTV increases above 80% at any time during the term of your LTV mortgage, we reserve the right to convert your LTV Rate to our then applicable Home Loan rate (Fixed or variable as the case may be)’’

In most cases, banks, as well as home owners, know within a reasonable margin what a property is worth.

Let’s assume Danske changed a low tracker rate to the much higher variable rate on the basis that the LTV was say 110%. Let’s say they backed this up with a drive by valuation from a reputable valuer, then it would be interesting to see what approach the courts or the Ombudsman would take, when they receive a complaint from the customer.

I too would be very interested in a legal opinion on the likely outcome in the above scenario, should it ever happen.

 

[ang1170]

I think we have essentially the same position: in theory this is a possibility, but in practice it is very likely it could not be enforced, due to the poor drafting of the T&Cs. As you say, a proper legal opinion would be useful.

To my mind, although the clause you mentioned exists, the only mechanism for renegotiation of the LTV is at the request of the customer. They can query the valuation you get and get an independent valuation, but this is all as a result of the customer making the request. There is no clause allowing for the bank to request a revaluation.

My guess is that:

- even with a legal opinion, it would at the very least be arguable
- the bank well know this, which is why they haven't pressed the issue.

 

[MrEarl]

It most certainly isn't the case that the T&C "clearly allow"......

Entirely correct.

Also, everyone reading this should review their individual paperwork (and perhaps thereafter if they feel it appropriate, get their own legal advice) as I am led to believe that Danske's paperwork changed over the years while they were advancing LTV mortgages.