Are Variable Interest Rates Variable? Mortgage Loans And Variations To Lenders´ Terms, Fees And Charges

The vast majority of mortgage loans are wholly variable at the lender's discretion. But are they?

Let's assume the lender's variable rate starts out 100bps above cash rates. Over the term, the lender increases the interest rate to cash rates plus 500bps. You would probably readily agree that the lender has acted improperly, and you probably suspect that a court would consider that this change is unconscionable. Presumably, therefore, whether a lender can change a variable rate depends on whether the change is reasonable. How can this reasonableness be assessed?

In a UK case Nash & Ors v Paragon Finance Plc [2001] EWCA Civ 1466 (15 October 2001) (click here to read), the borrower argued that there should be implied into a loan contract for a variable rate loan a provision that: