The court of appeal rules against West Bromwich for raising tracker mortgage interest rates, in favour of the buy-to-let landlord customers.
West Bromwich has been defeated in the Court of Appeal after the judge ruled the building society was not legally entitled to increase the buy-to-let tracker mortgage interest rates without a change in the Bank of England base rate.
In 2013 West Bromwich decided to raise tracker interest rates of 6,415 buy-to-let landlords by 2.0% increasing the cost by thousands to customers with a range of different mortgage rates.
The Court of Appeal decision means West Bromwich must repay the £27.5 million of excess interest charged to these customers.
Tracker mortgages are also available to other types of buyers such as first time buyers, home movers and remortgage buyers.
These are designed to follow the Bank of England base rates which have remained at 0.5% since 2009. These rates only go up when there is an increase in the base rate.
Ruling protects other buy-to-let customers
The West Bromwich had argued the terms of the mortgage contracts had allowed them, under certain circumstances, to charge interest rates at current market levels.
By ruling against the building society the court is protecting 1 million buy-to-let landlord tracker mortgages with other lenders that could have taken this action to increase revenue from customers.
The decision taken in December 2013 added 2.0% to the cost of buy-to-let mortgage and followed the Bank of Ireland increasing the cost of 13,000 of its lifetime tracker rate mortgage customers.
As an example a loan with a 1.49% rate would be 0.99% above the base rate more than doubled to 3.49%.
A loan with a 2.49% rate would be 1.99% above the base rate and increased to 4.49% and for a tracker mortgage of £150,000 the cost increased by £250 per month or £3,000 a year.
As an alternative to tracker rates first time buyers, home movers, remortgage buyers and buy-to-let landlords can select a fixed rate mortgage where the interest rate cannot change during the Introductory offer.
Customer action group success
Mortgage customers of the West Bromwich formed the Property118 Action Group to challenge the decision.
They received no support from regulators and initially raised £400,000 to fund legal action taking their case to the High Court.
The action group lost the first hearing but were eventually granted leave to appeal by the Court of Appeal in May 2015 winning their case this month.
It was decided that the West Bromwich was not legally entitled to vary our mortgage interest rates in the absence of a change in the Bank of England base rates and are not entitled to call in customer mortgages unless borrowers are in default.
Older homeowners can be forced to repay their loan to lenders due to product age limits and to avoid this, the equity release buyer can and agree a lifetime mortgage.
The building society must now repay the £27.5 million in additional interest charged averaging £4,286 for each buy-to-let customer.
What are your next steps?
Call our LCM mortgage brokers if you are a buy-to-let landlord with a property, remortgaging and want the best mortgage deal, buying your first home or you are planning to move home.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your home to maintain your lifestyle or gift a child or grandchild the deposit on their first home.
Start with a free mortgage quote or call us and we can take your details. Learn more by using the mortgage monthly cost calculators, property value tracker chart and equity release calculator.
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