Skipton may face legal challenge over mortgage hike

The UK's fourth biggest building society announced last month that it was increasing its standard variable rate, the rate customers revert to when their existing mortgage comes to an end, from 3.5% to 4.95% from the beginning of March.

The move breaks the group's pledge that its SVR will never be more than 3% above the Bank of England base rate, although it said it reserved the right to remove this ceiling in "exceptional circumstances".

But London-based law firm Leon Kaye Solicitors is investigating the legality of the move under the Unfair Contract Terms Act 1977.

It is also looking at whether the downturn in the economy is enough to trigger the "exceptional circumstances" clause.

The group said: "These 'exceptional circumstances' clauses are normally submitted into contracts to ensure that the lender has an element of control if things turn bad. However, such clauses can fall foul of the Unfair Contract Terms Act 1977.

It has already been contacted by around 100 Skipton mortgage customers, and is considering launching a test case or class action in the county court.

It may also take the issue to the Financial Ombudsman Service and trading standards.

Leon Kaye has previously represented policyholders of Equitable Life and is currently representing shareholders of both Bradford & Bingley and Royal Bank of Scotland.

But Skipton said it had consulted with regulator the Financial Services Authority before it announced the move.

A Skipton spokeswoman said: "As a responsible business, we are in constant dialogue with our regulator.

"We are not aware of any formal challenge being made but if one was to arise, we would deal with it through our normal procedures."

Skipton has around 29,000 customers on its SVR, with a further 35,000 due to revert to it in the near future.

The rate hike will cost a homeowner with a typical 150,000 mortgage 124 a month, or nearly 1,500 over the course of a year, and comes despite the fact that interest rates have been kept on hold since last April.

Six other lenders have increased their SVR since interest rates have been kept on hold, though none has hiked them by the same magnitude as Skipton. Accord Mortgages made the next biggest rise, of 0.65%.