19 March 2013

Bank of Ireland sticking with shock rise to Tracker Mortgage Rates

Been caught by Bank of Ireland's shock 300%+ rate rise on your tracker mortgage or worried your bank is going to follow suit?

The Bank of Ireland, owners of Bristol and West, are continuing with their planned interest rate rises for 13,500 tracker mortgage customers despite complaints to the FSA.

Residential tracker mortgage customers currently pay 1.39% made up of the Bank of England base rate of 0.50% plus a differential of 0.89%. Bank of Ireland have invoked a clause buried in the depths of the contract that allow them to change the differential under "exceptional circumstances”. The differential will rise to 2.49% on 1st May 2013 and then to 3.99% on the 1st October 2013 taking overall rates to 2.99% then 4.49%.

Holder of Buy to Let mortgages will be even harder hit with the rates jumping in one hit on the 1st May.

Treasury Committee Chairman, Andrew Tyrie MP wrote to the head of the FSA on the 6th March asking:

• What contacts and discussions have you had with the Bank of Ireland about this decision, and at what level of seniority?
• Will you be investigating whether the mortgage agreements concerned contained unfair clauses?
• Will you treat this as a prima facie case of product mis-selling?
• What analysis have you made of the customers affected and their ability to move their mortgage to another provide? [sic]
• How many other mortgage lenders have such clauses in their agreements with customers? What discussions with other lenders have you had as a result of the Bank of Ireland decision?
• What discussions will you have with the prudential regulation arm of the FSA about the Bank of Ireland's claim that the interest rate rise is a result of increased capital requirements?
• What discussions have you had with the Financial Ombudsman Service about the Bank of Ireland decision?

We look forward to the answers, as do many other lenders.

Clearly the Bank of Ireland doesn't want to lend money at a loss and is looking to both reduce the number of borrowers and return the mortgages to a profitable position for them. One has to ask the question – how hard would it have been for the bank to write into the mortgage contract a plain condition that their differential would rise if the Bank of England base rate fell below a certain level? However we understand that these mortgages were taken out before the FSA took over responsibility for regulating mortgages in 2004.

According to the Bank of Ireland's website:

"The change was made in the knowledge that no customer would be locked into the new rates. Customers who have been affected will not incur Early Repayment Charges if they decide to move to an alternative provider.”

We say, you're only free to take your business elsewhere if you can find another lender prepared to offer a mortgage so those suffering from reduced financial circumstances since the start of the downturn may well effectively be locked into the new rates. The Bank of Ireland may not find themselves in a better position if all their best risk customers have left but it wouldn't be their first bad move.

If you're looking for a new tracker mortgage, MoneyMaxim can help find one to suit you.