The Court of Appeal has found that West Bromwich Building Society was not justified in raising rates for buy-to-let landlords on tracker mortgages, a ruling that is likely to encourage borrowers with other lenders who have been similarly disadvantaged to make a claim.
The complaint against West Brom dates back to December 2013 when, despite no movement in the Bank of England base rate, the lender increased rates on its tracker mortgages. Customers were outraged, given that they were under the assumption that a base-rate tracker would track bank rate and the lender could not make its own decisions as to what the rate should be. It proved to be an expensive move for customers, with many finding that their monthly mortgage payments doubled. However, following a long battle, the Court of Appeal found against the lender, a decision that could cost West Bromwich £27.5m. As well as a refund, borrowers will be returned to the lower rate, which the Court of Appeal ruled they should have been on all along.
West Brom was not the only lender to raise its rates, and those who did the same are bound to be watching the ruling with great interest because it inevitably sets a precedent. The Bank of Ireland, Skipton and Manchester building societies have all raised their rates in the past few years. In March 2013 the Bank of Ireland increased mortgage rates for 13,500 of its customers – both landlords and ordinary homeowners – on tracker deals. As with West Brom, these were substantial increases, with rates rising from 2.25 per cent to 4.99 per cent, almost doubling some customers’ monthly payments.
Meanwhile, Skipton Building Society raised its standard variable rate in 2010 from the capped level, which was 3 percentage points above bank rate. This meant customers ended up paying 4.95 per cent. Manchester BS also got in on the act, raising some rates from 0.99 per cent to 4.95 per cent on tracker mortgages for both residential customers and landlords.
Part of the problem is that none of this is straightforward as mortgage conditions vary from lender to lender so the case law can not be used. But Mark Alexander, who brought the case against West Brom, is crowdfunding to raise money to fund similar challenges to Bank of Ireland, Skipton and Manchester building societies. Meanwhile, these lenders are standing by their decision to hike their rates.
In response to complaints from borrowers, the Financial Ombudsman Service found in favour of these lenders, but has said since the West Brom ruling that it may now reconsider complaints against the Bank of Ireland. Much will hinge on the lenders’ small print as to whether they are within their rights to hike rates as, and when, they wish. The Bank of Ireland told the Daily Telegraph that its “offer document and mortgage terms and conditions expressly stipulated that the tracking margin or differential could be varied, and the offer and mortgage conditions documents are consistent, allowing for the differential to be lawfully changed”.
The problem is that we are living through particularly unusual times when it comes to interest rates, and lenders have been well and truly caught out. Nobody envisaged that rates could be so low for so long – a situation that shows no signs of changing. Many lenders have been losing a lot of money, hence their decision to change terms on lifetime products and raise rates. In the case of the building societies, they have argued they were forced to do this in order to protect their members’ best interests. These lenders will have taken legal advice before taking action and will have been advised that they were acting within their rights.