Conal Gregory: The feeling isn't mutual as building society gives its borrowers a shock

SKIPTON Building Society enjoys an enviable position in the world of finance, not only in Yorkshire but nationally. The 157-year-old society is now the fifth largest building society with some 830,000 members and £15.6m of assets.

It took over troubled Scarborough last year and is likely to absorb the UK's oldest society dating from 1845, the Chesham, this June.

Yet from the beginning of March, many of its borrowers have been

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looking at it in far less kindly terms. Skipton has raised its standard variable rate (SVR) by a leap from 3.5 per cent to 4.95 per cent.

The announcement – particularly when there has been absolutely no change in Bank of England rate, which is at a 315- year low of 0.5 per cent – came as a shock to borrowers.

This is because the majority of home owners on SVR-linked loans

borrowed on the basis that they would not pay more than three per cent over base rate. Skipton issued such a guarantee.

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Yet, tucked away in the fine print, was an unusual clause. It said that it could dispense with such an undertaking in "exceptional

circumstances".

This states that the maximum difference of three per cent above Bank of England base rate could be changed on a formula involving UK average branch instant access savings rates over a three-month period.

Such information is hidden away in the arcane statistics produced monthly by the Bank of England, which hardly make for bedtime reading.

The prudent would have made budgetary plans on the basis of the

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guarantee. Those with C&G and Nationwide (pre- May 2009) know they can rely on a two per cent limit and with no "get out" clause for the lender. They provide their customers with an assurance that Skipton borrowers thought they also enjoyed. Even a mortgage expert like Ray

Boulger of brokers John Charcol knows of no other such guarantee worded in Skipton's weasel terminology.

When banks and societies find their room for manoeuvre limited by not being able to change terms for loans issued on a fixed, capped or tracker basis, the SVR is the one financial instrument they can alter. It gives them both flexibility and, when there has been no base change, almost instant changes to cash flow.

According to Moneyfacts, which checks rates across all providers, the current SVR is 5.03 per cent for building societies. Just three have increased their rates since Skipton's announcement. Of these, only Norwich & Peterborough is of any size. So it is not a trend.

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Skipton is sadly not acting as a mutual. This would be to recognise that the organisation is owned by its members, not by shareholders. It is acting far more like a bank, relying excessively on its subsidiaries:

its estate agency Connells brought in 54.1m profit last year (10.4m in 2008) and credit reference CallCredit boosted profits by 40m. The latter has now been sold.

Such a strategy has meant most added value to members has come through its non-core activities. It has successfully developed its advisory arm with 100,000 clients and 3.3bn funds now under management.

The names of its financial advisory firms may not be recognised as Skipton subsidiaries but include Parnell Fisher Child, Pearson Jones, Thomas Shepherd and discount broker Torquil Clark of Wolverhampton.

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It has been struggling to borrow on the wholesale markets and is not giving top returns to savers. Over three years, Icici, Coventry and Nationwide have been the most consistent. Currently, Leeds and

Nationwide offer the best cash ISAs.

Borrowers caught in this unpleasant situation could and should look elsewhere. To be fair, for those who moved their home loan, Skipton

waived interest on its normal basis, which is to charge to the end of the month redeeming, rather than daily like most societies.

Lenders are aware that February recorded the first fall in property prices for 10 months, although much of this was down to the bad weather and end of the stamp duty holiday. Nationwide says the average house cost 161,320 in January, which is 13 per cent lower than at the peak of October 2007 when it hit 186,044.

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Yet the proportion who own their own home has dropped from 70.9 per cent in 2003 to 67.9 per cent in 2008-09, according to the English Housing Survey, published by the Department for Communities and Local Government.

Part of the reason for such a fall is the dearth of funding with a first-time buyer now requiring 34,000 deposit by comparison with just 12,700 three years ago. Immigrants, who often initially go into private rented accommodation, also account for the drop.

Skipton, now enjoying a substantial profitability on its SVR, may look to help such groups on to the first rung of the housing ladder.

Meanwhile, those caught in the web may hope that David Cutter, Skipton's Group chief executive, will not impose such a margin for long.

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The announcement stated that the society was "temporarily" taking exceptional action.

Few are offering odds on this being weeks rather than months. It is not only historians who recall Pitt's "temporary" tax to pay for armaments –the introduction of income tax – which looks pretty permanent.

Conal Gregory is the Yorkshire Post's personal finance correspondent.