SPECIAL FEATURE: The end of the road for trackers

Robyn Hall

June 10, 2013

The Bank of Ireland has partly backtracked on its decision to raise mortgage rates for thousands of customers who thought they were on Bank of England base rate trackers for life.

The bank now says that about 1,200 homeowners will no longer be hit by the increase.

BoI has highlighted two groups of customers that will be excluded from the rise. The larger group consists of about 1,000 mortgage customers who were actively using the flexible facilities on their mortgage account. BoI says these borrowers “received a specific administrative letter linked to their transactions that might have caused them to believe the differential was for the term of their mortgage”.

A smaller group has about another 200 cases affected. But that still leaves over 12,000 customers will still be hit with higher mortgage payments.

Landlord sites Property118 and LandlordAction are looking to launch their own joint class action – and many affected borrowers have joined up with them.

Personally, I predict that BoI will be found to have hidden an important clause in its mortgage contract and that this was a clear breach of the rules on fair contracts only in relation to consumers.

However I also predict that the courts will probably make a distinction between professional full time buy-to-let landlords who would have been expected to have read the small print and others who as “consumers” may not have been expected to have read all the bumpf.

In other words I predict the judgement will follow the same outcome as the “Foxtons Case”. In this case repeat letting fees were charged to landlords by many letting agents despite the existence of such fees being hidden in small print or in separate documents.

Foxtons and other letting agents lost and now have to make sure such important terms are flagged up clearly especially to part time landlords who could be deemed to be consumers and therefore covered by unfair contract rules.

But what has escaped the notice of most personal finance writers is that two big lenders in the buy-to-let space have always had lifetime trackers that actually followed their own Bank’s base rate, not the Bank of England base rate.

Over many years, these Banks’ own base rates have been exactly the same as that of the Bank of England.

Of course, if their own base rate suddenly diverged from that of the Bank of England’s, questions might be asked about what they were planning next.

Both banks will be watching the outcome of the BoI case very carefully indeed. Both issued very low lifetime tracker mortgages – many fixed at less than one percent above base rate – and therefore both will be losing a lot of fortune on these existing mortgages.

If the judgement goes the way of the Bank of Ireland both could raise their own base rates and “financially duff up” their own borrowers who, no doubt, will have thought they were safely on a Bank of England base rate tracker deal. These borrowers will be in for a shock.

But they may not be the only lenders looking for a way out.

We recently saw a new BM Solutions buy-to-let Bank of England base rate “lifetime” tracker mortgage offer where, within the small print, the way appeared to be open for the lender to renege on the tracker for a host of reasons, including changed “competitive conditions” and “funding environments”.

Of course, if these “ways out” are to be allowed (which may well depend on the eventual rulings in the BoI case), then the next question the lending industry may have to face is how such mortgages can be allowed to be marketed as lifetime tracker rates in the first place.

In the meantime, buy to let mortgage customers – especially those who are deemed to not be consumers by dint of the extent of their landlord activities – should proceed with caution and carefully check the small print on mortgage offers very carefully.

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