Obviously such clauses are necessary and, while clients will never be happy with rates rising, firms must be able to react and adapt to market shifts.
However, in the case of recent mortgage rate hikes, which the Financial Conduct Authority revealed yesterday (21 November) it will be tackling in a paper next year, I can’t help but feel the ‘market conditions’ excuse is being stretched to breaking point.
In February Bank of Ireland was widely criticised for upping 13,500 mortgage customers’ standard variable mortgage rate by almost 2.75 per cent, citing a significant increase in the cost of funding since 2008.
The bank has since said that around 1,200 customers that either had flexible mortgage facilities or that transferred to the tracker under an agreement that did not detail when the SVR could be altered would not have to pay the higher rate. There was no such reprieve for the remaining 12,300 borrowers.
In September, FTAdviser revealed West Bromwich Building Society had hiked buy-to-let rates by 2 per cent for those that who have multiple property portfolios. Once again, a supposed shift in rates since 2008 was blamed for the need to increase the rates.
However, according to one mortgage expert these claims of costs rising simply do not ring true and the wholesale cost of borrowing has actually been falling steadily for the past 18 months.
Ray Boulger, senior technician at mortgage broker John Charcol, told me that there is no reason for lenders to increase SVRs in the current market as three-month Libor - a key consideration for lenders’ wholesale borrowing - has halved in the last 18 months and now hovers around the 0.5 per cent mark.
Perhaps it is significant that West Brom, to take one of the above examples, offered a second reason for the rise: according to its terms and conditions it can vary rates in order to “... make sure our business is carried out prudently, efficiently and competitively”.
For the last two financial years, West Brom’s commercial department, which would include buy-to-let, has posted significant losses: £14.3m for the 12 months to the end of March 2013 and £13.6m to the end of March 2012.
Are lenders actually simply correcting an earlier error of judgement to use low rates to attract customers that have since proved unsustainable?
A spokesperson for West Bromwich said: “Our point on this is that market conditions have changed significantly since these buy to let mortgages were taken out (2006-2008), resulting in an increased cost of funding them. At the same time, the landlords in question have seen their interest rates fall, with a consequent increase in their income.
“We have held off on making any changes to rates for as long as we feel reasonable, but have acted now to balance the interests of the society’s wider membership, particularly our savers.”
Earlier this week, the FCA wrote to the chief executives of mortgage lenders stating that it is set to step in over ‘unfair’ hikes to mortgage rates and that it is planning to publish a discussion paper on the issue next year.
In a ‘Dear CEO’ letter signed by director of supervision Clive Adamson, the regulator stated that it is “concerned” factors driving changes to standard variable rates may not always be “transparent” to consumers and that it may breach regulatory principles.
Sounds to me like it is right on the money.
However, Mr Boulger does not believe that addressing mortgage rates is top of the FCA’s list, adding that the regulator had originally promised the publish a paper this year but decided against it. It has offered no hints on when in 2014 we can expect it, either.
Buy-to-let is not regulated by the FCA so this will not apply to West Brom, but both of the above cases highlight what is in my view nothing short of disingenuous smoke and mirrors by providers.
The quicker the FCA acts to set an example here, the better.
