Tracker Mortgage Collars

[calamity jane]

Due to the reducing interest rates some mortgage providers are stating that they will be applying what is called a ' collar' and not reducing the rate any further.
The FSA have now stated that these collars may be invalid if they were not mentioned in key mortgage documents.

http://www.telegraph.co.uk/finance/p...-says-FSA.html

[enaid]

Re: Tracker Mortgage Collars

It comes amid a growing controversy about collars, which prevent tracker mortgages dropping below a certain level.
The Financial Services Authority said collars may not be enforceable if borrowers were not told about them when they took out their home loan.

Customers are being urged to check their mortgage documents which outline the most important terms - known as Key Facts Illustrations - to see if collars are mentioned. I can see you all digging out your contracts as we speak, or you had better be...........

Britain's biggest lender, Halifax, removed any reference to its collar from the KFI after the City watchdog said the document was too long.
A spokesman for the FSA told The Daily Telegraph: "If a lender has not included its collar in the Key Facts Illustration, then yes, it is a breach of the rules."
But she refused to comment on the action that the FSA would take following such a breach.
Jon Pain, the FSA's retail markets manager, has said: "Whilst tracker interest floors can be a legitimate term of a mortgage, this can only be if it is clear and unambiguous to the consumer and is consistently and prominently spelt out in the initial Key Facts Illustration and offer document throughout the sales process.
"If it is not, you run the real risk of both breaching our disclosure requirements and having an unfair contract term you can't enforce."
There are no official figures showing exactly how many borrowers have collars, but estimates range between 10 and 50 per cent of the 4.2 million people with tracker mortgages.
Collars have come under the spotlight amid growing fears among lenders that they may be left making next to no profit on the mortgages they sell if interest rates continue to fall.
Rates fell to 3 per cent last month, and many analysts believe the Bank of England will cut by one per cent, bringing rates to their lowest level since 1951.
Melanie Bien, of mortgage brokers Savills Private Finance, explained: "As interest rates fall to new lows, lenders face the challenge of passing on rate reductions to borrowers and yet still remaining profitable.
"It is likely that in future those lenders without collars on products will consider introducing them to protect margins."
Collars vary among lenders. For example, Nationwide has a collar of 2.75 per cent, while Abbey has a collar of just 0.001 per cent, which is mentioned on its KFI.
Lloyds TSB and C&G do not have a collar on any of its products, and it ruled out introducing a collar on its deals in the immediate future.
Halifax is understood to have a clause in its terms and conditions which gives it an option of not passing on a cut if the Bank of England base rate goes below 3 per cent.
A spokeswoman said: "We will make the decision on whether or not to exercise the option when rates do fall below 3 per cent. We are noting the comments by the FSA and are looking into them."
Andrew Montlake, of mortgage brokers Cobalt Capital, said: "A lender must make it absolutely clear what the collar is, otherwise it is unfair. They should not be allowed to just sneak a collar into a deal without making sure a borrower's attention has been fully alerted to it.
"With interest rates falling, we are likely to see more lenders introduce them in a move to protect their profits."
The Council of Mortgage Lenders said: "Any mortgage contract is going to be bound by the terms and conditions of that loan."