The Financial Conduct Authority has signalled that it may look to crack down on clauses within mortgage contracts which allow lenders to push through rate hikes despite the base rate remaining at a record low.
FCA director of super-vision Clive Adamson sent a Dear CEO letter to banks and building societies last week raising concerns that factors driving increases to standard variable rates “may not always be transparent to consumers”.
He said a number of lenders had approached the regulator about wanting to make changes to their mortgage contracts, including SVRs. He warned that the planned rate hikes may be based on unfair contract terms and conflict with the FCA’s principles for businesses.
The letter states: “If you have an unfair term in your mortgage contract, it will not be binding on the consumer. If you have a term in your mortgage contract that is not written in plain and intelligible language, the interpretation that is most favourable to the consumer shall prevail.”
It adds that in the case of “trapped borrowers” who are unable to secure new mortgage terms, “lenders should not treat those customers less favourably than other customers by offering less favourable interest rates or other terms to take advantage of the fact they are unable to exit the mortgage”.
Some 6,700 West Bromwich Building Society borrowers on buy-to-let trackers will see their rates increase by 2 per cent on 1 December.
Bank of Ireland wrote to 13,500 buy-to-let and residential borrowers in February saying that their rates would be hiked.
Chadney Bulgin mortgage partner Jonathan Clark says: “Lenders should not need to be warned by the FCA that SVR hikes are unfair.
“The FCA is right and in this situation it is the trapped borrowers that I am most worried about.”