Ombudsman must look at mortgage claim again

The Financial Services Ombudsman must reconsider a couple’s complaint that Danske Bank was not entitled to increase to 4% the variable interest rate on their mortgages at the same time the ECB interest rate was falling to almost zero, following a High Court ruling.

Kenneth and Donna Millar claimed the rate hikes occurred from 2011 despite the ECB rate falling dramatically in the period and this amounted to breach of their mortgage contracts and also contradicted statements on the bank’s own website.

Upholding their appeal against the ombudsman’s rejection of their complaint, Mr Justice Gerard Hogan found “serious and significant” error in how the ombudsman had interpreted a key clause in contract documents concerning the bank’s entitlement to increase the variable interest rate payable on the mortgage accounts.

He directed the ombudsman to reconsider the complaint in a manner “not inconsistent” with the court’s findings.

The case arose after the Millars entered from 2005 into seven mortgage loan agreements with Danske’s predecessor, National Irish Bank, for their family home and a number of residential investment properties. The interest rate applying to the loans, which are not in arrears, was a standard variable rate.

The Millars argued, given the terms of the mortgage deeds and other evidence, Danske acted wrongly in increasing interest rates at a time rates generally have fallen to historically low levels.

The dispute centred on a particular clause — clause 3 — in the mortgage agreements which stated “rates of interest are altered in response to market conditions and may change at any time without prior notice and with immediate effect”.

The couple argued the bank is only entitled to amend or alter the rate of interest “in line with the general market interest rates”.

They also relied on other bank documents including a March 2009 explanatory note for customers on the bank’s website which stated: “… the interest rate you pay on a National Irish Bank variable rate home loan changes in line with any fluctuations in general interest rates. When interest rates go down, your monthly payments do likewise. However, when interest rates rise, your monthly payments will increase too...”

In dismissing their complaint, the ombudsman found Danske’s obligation under the agreements was to alter the rate in response to “market conditions” and the bank was not obliged to disclose the basis on which its assessment was calculated.

Mr Justice Hogan said in construing clause 3, the key words were “in response to market conditions” and the ombudsman erred in finding clause 3 was “clear in its wording,” the judge found.