As we covered in one of our earlier articles, the Skipton Building Society has effectively ripped up and rewritten thousands of mortgage arrangements using a get out clause introduced in 2002. The company has used the prolonged period of low base rates in the UK as a means of rewriting the terms of its standard variable rate mortgage which prior to yesterday could not be more than three percentage points above base.

With up to 60,000 mortgage holders affected by the change in the standard variable rate, which will now increase to 4.95% and see the average homeowner paying back an additional £1500 a year, there is sure to be some significant fallout for the building society. There is no doubt that the building society sector has been hammered by the economic downturn and the credit crunch but it is more the inability to attract more and more savers to the UK operation which forced the society's hand.

The margins between savings interest rates and mortgage interest rates were unsustainable going forward and could eventually have brought down the Skipton Building Society. However, when many of the building society's customers signed their mortgage arrangements they did not expect to see a jump from 3.5% to 4.95% overnight. The fact that such a water tight clause was written into the mortgage agreements means there is unlikely to be any legal recourse for customers.

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