Buying a property is stressful enough. For most requiring a home loan, the repayment sums are crucial and that is part of the appeal of tracker mortgages which follow a published and recognised index, such as the Bank of England base rate.
Home owners sign up to such tracker arrangements on the basis that the only change in the interest rate and hence their repayment subscription is if the underlying index alters.
Those who have loans linked to the Bank of England base rate have enjoyed both stability and low cost at 0.5 per cent rate for over four years.
Imagine the surprise for almost 14,000 borrowers with the Bank of Ireland and Bristol & West who have found their ‘lifetime’ base rate tracker mortgages suddenly jumping in price.
For a £200,000 loan, the increase means having to find an extra £310 a month.
Loans on average will shoot from 1.5 to 4.49 per cent for home owners and from 2.25 to 4.99 per cent for buy-to-let savers. Careful budgeting will go out of the window.
Quite why the Financial Services Authority has not taken immediate action for a breach of contract is amazing but perhaps because it has only days to live (March 31).
Technically, such a mortgage provider will have inserted a weasel clause that it has the power to alter the rate after a certain date.
Whilst this may become a battle ground for lawyers, it would not pass any plain English test or be in the spirit intended.
If anything, borrowers could expect either the same base level or even lower if one of the Bank of England’s deputy governors had his way.
Lenders who act in this way say increases reflect the higher charges of their borrowing. If true, this means they are not up to the task.
When selling mortgages, they should always ensure borrowings are covered.
This is not the first time borrowers have experienced such action.
Three years ago Skipton increased a reversion rate guaranteed to track bank rate, citing “exceptional circumstances.”