The Financial Conduct Authority will investigate recent moves by some lenders to raise tracker mortgage rates while the Bank Rate remains unchanged.
The FCA probe into whether UK mortgage lenders should be able to alter a borrower’s contract terms comes after the West Bromwich Building Society and the Bank of Ireland have raised the tracker mortgage rates of its customers.
In September, West Brom announced that nearly 7,000 buy-to-let tracker mortgage borrowers would experience a rate increase of two per cent in December. For most customers, this will likely double their rates and increase their monthly payments by a substantial amount. This came on the heels of a similar move made by the Bank of Ireland earlier this year.
To fight the increases, the information portal Property118.com has raised more than £20,000 to develop a test case and see if it can be taken to court before possibly filing a class action lawsuit.
Due to the non-regulated nature of the buy-to-let sector, the FCA has declined to comment on the tracker mortgage rate hikes, but it has admitted that an issue of fairness must be addressed.
An FCA spokesman said, “There is a wider issue to be debated with the industry about fairness in the context of changes to mortgage contracts. We intend to publish a discussion paper on this subject later this year.”
The recent rate hikes have spread fear that other lenders may be tempted to follow suit in order to benefit from wider margins.
Customers have been sold tracker mortgages based upon the understanding that the rates simple track the Bank Rate of the Bank of England. The loans currently track the Bank Rate of 0.5 per cent, plus an additional margin that is set when the mortgage is taken out. In most cases, the margin does not change during the loan term.
Ray Boulger, a mortgage broker at John Charcol, believes the court action by Property118.com may prove successful. According to Boulger, “Borrowers can put forward sound arguments against the move, including the fact that the Key Facts Illustration did not include the risk of the lender raising the rate.“
He suggests that borrowers affected by tracker mortgage rate increases should voice their concerns to the FCA, because the financial regulator may be swayed to conclude that West Brom’s recent move was unfair to borrowers and force mortgage lenders to adjust their rates. Although the buy-to-let sector is not regulated by the FCA, individual lenders do fall under their jurisdiction.