Bank of Ireland Doubles Tracker Mortgage Rates!
Those of you who regularly read our posts on Money Bulldog will know that I’ve been getting a little worried recently about the potential for mortgage rate rises by some lenders in the not too distant future. We wrote a post encouraging borrowers to take a look at the best remortgage rates around while they’re still available and have also talked in some length about the power lenders have to raise SVR’s (Standard variable rates) at their discretion. What I haven’t mentioned though is the possibility that lenders might begin to raise the interest rate payable on base rate tracker mortgages. I didn’t mention it because along with other homeowners and even many mortgage brokers, I didn’t even realise it was possible let alone legal.
For 5 years now many homeowners and landlords have been sitting pretty, paying minimal interest on base rate tracker mortgages. A large percentage of those mortgages are supposed to be lifetime trackers, tracking the Bank of England base rate for the life of the mortgage agreement. This weekend though, I came across a BBC News article that will have homeowners with tracker mortgages nervously reaching for their terms and conditions. The article in question concerns a move by the Bank of Ireland to raise the interest rate payable on base rate tracker mortgages, not just by a little but by a lot! Take a look at these figures.
‘From 1 May, the bank will raise the mortgage rate for residential customers from, typically, the Bank of England rate plus 1.75%, to the Bank rate plus 2.49%.
It will then raise it further, to Bank rate plus 3.99%, on 1 October. Buy-to-let customers will see their rate increased to Bank rate plus 4.49% on 1 May.’
So from the 1st of October 2013 some 13,500 Bank of Ireland mortgage borrowers could see the interest rate payable on their mortgage more than double.
To illustrate how these changes might affect monthly mortgage repayments, the article also mentions one landlord who is going to see his mortgage repayment rise by some £776 a month!
Are lenders allowed to do it?
Technically the answer to this question is yes. I’ve had a quick look at the terms and conditions of these Bank of Ireland mortgages and there does appear to be a special clause that allows them to change the differential rate payable in special circumstances. The circumstances the Bank of Ireland are using to justify the rate increases are firstly the increased costs the bank is facing to fund mortgages and secondly the requirements being placed on banks to hold more capital.
There are unsurprisingly many complaints being made regarding the move but whether they will have any success in either stopping or even reducing the severity of the rise remains to be seen.
Will other lenders follow suit?
This is the burning question that will be worrying many mortgage borrowers throughout the UK who are currently sitting on a base rate tracker mortgage. Are the proposed rate rises at the Bank of Ireland an isolated case or will other mortgage lenders follow suit?
A couple of lenders have already spoken out and said that there is nothing in their terms and conditions that would allow them to make such a move. As for the others? Well I suppose it depends on whether the Bank of Ireland gets away with it.
If after the complaints procedure has been exhausted the move still goes ahead, then who knows whether other lenders will decide to take similar action. My advice would be to check the terms and conditions of your mortgage agreement to see if there are any ‘Special Conditions’ that might allow for the differential rate payable to be changed.
What can you do?
Although you can’t control what your lender might choose to do, there are still things you can do to protect yourself from future rate rises. Many fixed rate mortgage deals currently available have lower rates of interest than the standard variable rates being charged by many banks. Even if you did have to pay a little more for a fixed rate mortgage, the peace of mind it could bring may well make it worth the few extra pounds.
If you’d like to discuss your mortgage options you can request a call back from an experienced advisor here.