Thousands to complain about 'lifetime tracker' payments
- 1 May 2013
- From the section Business
Thousands of borrowers are set to make official complaints about a sudden increase in their mortgage rates, which takes effect on Wednesday.
Some customers of Bank of Ireland (BOI) and Bristol and West will see their repayments double overnight.
The changes will affect 13,500 homeowners, who took out tracker mortgages as long ago as 2003.
BOI has defended its decision, saying that customers were warned about such rises in the small print.
But lawyers are now advising those people affected to make an official complaint about BOI to the Financial Ombudsman Service, in an attempt to obtain possible compensation.
Customers who took out tracker mortgages (in some cases they were called "lifetime trackers") were told they would track the Bank of England base rate, plus a margin of, for example, 0.85%.
Many were under the impression that the margin would stay the same, and hence the cost of their mortgages would only rise if the underlying base rate were to rise.
The base rate has remained at a record low of 0.5% for the past four years.
So some borrowers are furious that typical repayment rates will rise from 1.35% (0.5% base, plus 0.85% margin) to 2.99% from 1 May.
Residential customers will then face a further rise in October, to 3.99%.
Gary Smith, from Colchester in Essex, took out a £200,000 mortgage with Bristol and West, a BOI subsidiary, in 2004.
He faces having to pay an extra £280 this month and a further £200 in October.
"It was sold and marketed as a tracker rate," he told the BBC.
"I thought I had that margin for life. It's all very frustrating," he said.
Mr Smith said he was not in a position to move his mortgage elsewhere, as his wife was now only working part-time and no other lender would grant a mortgage on his new earnings multiple.
Two-thirds of the customers affected are buy-to-let landlords, and they face an even steeper increase than residential borrowers.
Instead of facing a staged increase, they will be hit by a doubling of rates this month.
Colin Thody, from Mytchett in Surrey, is a buy-to-let landlord who believed he would pay 1.75% over base rate for the lifetime of his mortgage.
This month, his mortgage repayment will increase from £270 to £600.
"I think the bank has acted in an immoral way and will cause many landlords serious financial problems," he told the BBC.
Lawyer Justin Sellig is advising customers to complain to the Financial Ombudsman.
"People were sold a lifetime tracker," he says.
"They were led to believe that the margin over base rate wouldn't change."
The consumer organisation Which? is advising customers to complain directly to BOI if their mortgage had the word "life" or "lifetime" in its title.
"Customers should complain if they were led to believe they had bought a 'lifetime' mortgage and Bank of Ireland must deal with these complaints quickly and fairly," said Richard Lloyd, executive director of Which?.
But BOI insisted that if customers had read the small print on their contracts, they would have known that the bank had the option to increase its margin over base rate.
It said the increase was "permitted by a specific clause in these mortgage contracts".
It added that "this clause was clearly referenced in the pre-sale offer document provided to the customer".
BOI blamed the increase on a rise in the cost of providing such mortgages, and on the need to maintain greater levels of capital.
It said that customers were free to move to other providers, and that no early repayment charges would apply.
Andrew Tyrie MP, who chairs the Treasury Select Committee, has twice written to the Financial Conduct Authority (FCA), asking them to investigate potential mis-selling.
But the FCA said that since mortgages were not regulated before October 2004, it had no power to carry out an investigation.
Customers with queries can call Bank of Ireland free on 0800 345 7512.