Mortgages: Banks warned against pushing up interest rates


iStock_000004583777XSmallThe Financial Conduct Authority (FCA) has warned banks and building societies that changing the terms and conditions on tracker mortgages could break consumer protection laws.

These types of loan are known as a tracker mortgage, because the interest rate charged is designed to only change in line with the rate it tracks, usually the Bank of England base rate. However, over the past few months, two high profile lenders, the Bank of Ireland and West Bromwich Building Society, have taken advantage of obscure clauses in their mortgage contracts to increase the margin above Bank of England base rate which they charge on some of their buy to let mortgages.

The move sparked outrage amongst the mortgage holders affected. Many claimed the increase was unfair given that base rate has remained unchanged at 0.5% for over four years and they believed the margin above base rate, charged by the lenders, couldn’t be changed.

Mortgage lenders contact the FCA

It now appears that a number of mortgage lenders, who are clearly considering a similar move, have contacted the FCA in an effort to find out whether or not the change would be lawful.

It has been reported that in response, the FCA has written to mortgage lenders warning that changing borrower’s mortgage contracts could be unlawful and breach consumer protection laws.

An FCA spokesperson 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.”

Buy to let investors will be keeping a close eye on the situation, nervous that other mortgage lenders could decide to follow suite, pushing up costs for thousands of landlords, which could ultimately see rents rising even faster than they are currently.