Skipton may face challenge on mortgage rate

The mutual last month revealed plans to raise its standard variable rate, which will result in bigger monthly payments for tens of thousands of mortgage customers.

The UK's fourth biggest building society blamed "exceptional market conditions" for its decision to raise the rate from 3.5 to 4.95 per cent, despite a guarantee to lenders. The move will see typical monthly payments on a 100,000 mortgage increase by 121 – or 1,254 a year.

London law firm Leon Kay Solicitors said it is investigating whether there is a legal case against the mutual.

Some 29,000 borrowers will be affected when the new rate comes into effect on March 1. A further 35,000 borrowers are due to revert to the standard variable rate in the future.

Despite the Bank of England base rate standing at just 0.5 per cent, Skipton scrapped a guarantee to borrowers on the standard rate that they would never have to pay more than three per cent above the base rate.

The law firm said the mutual could have breached the Unfair Contract Terms Act 1977 and it was looking at the legality of the move.

A Skipton spokeswoman said: "We are not aware of any formal challenge being made but if it was to arise we would deal with it through our normal procedures."

Leon Kaye is also working for shareholders of failed bank Bradford & Bingley.