For millions of mortgage borrowers in the United Kingdom, the static base rate that has been maintained by the Bank of England since March 2009 has meant that monthly mortgage repayments have remained low and that they have also have been stable.
However, it has started to become apparent that an unchanging Base rate no longer necessarily infers stable mortgage interest rates. Some major UK lenders have decided to increase mortgage rates for thousands of their borrowers despite the static Bank of England base rate.
An extremely controversial decision by the Bank of Ireland in early 2013 to invoke a little-known “exceptional circumstances” clause in the contracts of tracker rate mortgage customers has meant that the mortgage rate on thousands of loans has been increased. This decision, which also affects Bristol & West customers, has led to the doubling of interest rates in some cases.
With the Base rate held at a record low of 0.5 per cent since early 2009, the Bank of Ireland have invoked ‘special conditions’ which have enabled it to increase the margin by which mortgages track the base rate.
These changes on, for instance, a million pound mortgage have resulted in monthly repayments rising in two phases by almost double to £2,000 per month, with the final phase introduced in October 2013.Customers with buy-to-let mortgages with the Bank of Ireland have incurred even higher rises in their payments.
The Bank of Ireland made the decision because of the significant increase in the cost of funding tracker mortgages over the past 5 years and the need to maintain higher levels of capital.And they are not the only lender to ignore contractual understanding and any sense of fairness in its dealing with its customers. The West Bromwich building society has also made a similar decision to increase tracker rate mortgage margins
Many customers are, understandably, contacting the Financial Ombudsman to complain about the unfairness of this situation as the whole idea of a tracker mortgage is that it mirrors the Bank of England Bank Rate by a fixed margin.
The City watchdog, the Financial Conduct Authority (FCA) will also be examining lenders’ increasing tracker rates even when the Bank Rate remains constant as many mortgage customers are arguing that the risk of a rise to their tracker rate was not highlighted to them when they embarked upon the mortgage agreement.
Leading London mortgage brokers found this a staggering decision by Bank of Ireland and West Bromwich Building Society. With tracker mortgage rates designed to be transparent for the customer and to mirror changes in underlying interest rates it is not surprising that borrowers are complaining in their thousands. It is unprecedented for a lender to simply ignore a contractual understanding and increase the mortgage repayments of thousands of large mortgage borrowers. What makes the situation more unpalatable is that the Bank of Ireland fund the mortgage deals available via the Post Office. Some of those deals are amongst the market leading products in the UK so the Bank are offering new customers great deals but increasing rates for existing borrowers.