A Conservative MP has called on the Government to investigate whether two leading mortgage lenders should be allowed to raise borrowing rates for their existing customers. In the last year the Bank of Ireland and West Bromwich Building Society have both increased their tracker rates for some existing customers despite the Bank of England Base rate remaining at its record low level of 0.5 per cent.
Tracker rates are designed to move in line with the Bank of England’s base rate, but these two lenders have increased the rates they charge thousands of tracker borrowers.
MP wants Parliament to debate ‘immoral’ mortgage rate rises
David Morris, the Conservative MP for Morecambe and Lunesdale, has filed an early day motion – a formal call for debate in Parliament – on the conduct of mortgage lenders. Mr Morris told the Daily Telegraph he is ‘extremely concerned’ about the fact that mortgage lenders are increasing the margin they make on tracker mortgages even though the Base rate hasn’t changed since March 2009.
“This practice is damaging to the economy, immoral and may even be illegal,” he said.
Last May, the Bank of Ireland increased rates for 13,500 tracker customers from base rate plus 1.75 per cent to base rate plus 4.49 per cent for buy-to-let deals and base rate plus 2.49 per cent for residential customers. In October residential borrowers suffered a further increase to base plus 3.99 per cent.
After adverse media coverage and criticism of the move, the bank reversed the increase for 1,000 flexible account customers and 200 more who had switched to a tracker mortgage.
In September, West Bromwich announced that 6,700 buy-to-let tracker borrowers would see their rate rise by 2 per cent in December. This more than doubled some customers’ rates and monthly repayments. While the affected West Bromwich borrowers are landlords only – not owner-occupiers, the Bank of Ireland borrowers are both owner-occupiers and landlords.
Many borrowers argued the rate rises were unfair because tracker mortgages are designed to track the base rate. West Bromwich’s own marketing literature said: “Tracker mortgages give you the certainty of knowing that the rate you pay will move in line with bank base rate.”
Regulator has warned lenders about raising mortgage rates
In November, the City watchdog wrote to banks and building societies warning that changing customers’ mortgage terms could breach consumer protection laws.
Now, the matter could be debated in Parliament. The early day motion, filed by Mr Morris, said: “That this House condemns mortgage lenders breaching tracker rate mortgage contracts by unilaterally increasing the margin they charge over the Bank of England base rate in order to increase their profit margins and deliberately targeting borrowers where consumer protection law is ambiguous; and calls on the Government to investigate the alleged associated recent activities of the Bank of Ireland and West Bromwich Building Society.”
Islay Robinson, CEO of London mortgage broker Enness Private Clients, said: “Seven fellow MPS have already signed Mr Morris’ motion, although these issues rarely make it to the Parliamentary agenda.
“What this does is once again raise the issue of lender behaviour and whether lenders should be allowed to invoke hidden terms and conditions to raise the cost of borrowing. The FCA has already warned lenders that rate rises could breach consumer law and the regulator’s principles for business and these companies may well still find themselves in court as a result of their actions.”