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FCA looks to crack down on tracker rate hikes

The FCA has signalled it may look to crack down on clauses within mortgage contracts which allow lenders to push through rate hikes despite base rate remaining at a record low.

The Times reports that the FCA has written to bank and building societies as the regulator reveals that several lenders are seeking to follow Bank of Ireland and West Bromwich Building Society in hiking tracker rates.

According to the newspaper, the letter from FCA director of supervision Clive Adamson states: “A number of mortgage lenders have engaged with us recently about changing their mortgage contracts, including standard variable rates.”

Adamson goes on to warn that changes to mortgage terms could breach consumer law and the FCA’s principles for businesses, and that lenders should be able to demonstrate to the regulator they have complied with relevant rules when making any changes.

The FCA plans to publish a discussion paper on the fairness of changes to mortgage contracts next year.

Money Marketing reported earlier this month that more than 150 West Brom borrowers are launching a legal challenge after the mutual told 6,700 of its buy-to-let tracker customers their rates would increase by 2 per cent on 1 December.

Bank of Ireland borrowers are also seeking legal advice after the bank wrote to 13,500 buy-to-let and residential borrowers on tracker mortgages in February saying their rates would be hiked.

Buy-to-let borrowers saw their rate jump from Bank of England base rate plus 1.75 per cent to base plus 4.49 per cent, while residential borrowers saw their rate rise from base plus 1.75 per cent to base plus 2.49 per cent, then to base plus 3.99 per cent.

The FCA set out concerns following Bank of Ireland’s rate hike in a letter to Treasury select committee chairman Andrew Tyrie. In the letter, published in July, FCA chief executive Martin Wheatley said the regulator has restricted powers in tackling the rate hikes as the mortgages were sold prior to regulation of the sector.

Wheatley said: “I would like to assure you that the FSA was concerned about this issue from a consumer protection perspective and that the FCA continues to work with the firm to ensure appropriate consumer outcomes.”

The letter was written the day before Bank of Ireland reversed its decision for 1,200 customers.


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. I would suggest that they also look to ‘crack down’ on the increasingly worrying treatment of ‘mortgage prisoners’ too. A potentially very very large problem simmering below the FCA radar and brought about as a direct result of the regulator’s MMR.

  2. Grey Haired Underwriter 20th November 2013 at 11:18 am

    I understand the chagrin of these borrowers to some extent but I also find myself fuming about the position that the treasury (which includes the FCA) has put these lenders in. The simple fact that BBR has not reflected the cost of funds for many years and that almost every pre 2007 tracker mortgage is a loss maker has to be considered. By all means force the position but then allow for the fact that somewhere along the line something has to give. We have already lost the Stroud and Swindon mainly due to the fact that their book was heavily geared towards trackers that just drained profits from the business and ask whether we can afford to continue to put other lenders into such a difficult position. This is about greed but the greed of the borrower who is making such excellent returns on their rental properties by virtue of the decline in rates since they commenced ownership.

    The bottom line is the BoE has put lenders in this position and should be very careful about bleating about a business trying to keep its head above water. The double whammy of course is that a Building Society needs profits to provide capital reserves to carry out lending because the dear Treasury cannot think of any other way for a BS to build its capital in any other way!!!

  3. I find the above post deeply offensive. It refers to “… the greed of the borrower who is making such excellent returns on their rental properties by virtue of the decline in rates since they commenced ownership.”

    The individual is making an extremely uneducated generalisation about all landlords. I have been paying £500-£600 per month over the odds to the WBBS for the last 5 years as it held me to the terms of a fixed rate mortgage. Within THREE MONTHS of my rate reverting to the agreed rate, the society is crying “foul”.

    I am unclear why the Grey Haired Underwriter is more concerned about the Society’s financial hardship, rather than that of nearly 7,000 individuals, many of whom will be driven into bankruptcy.

  4. Re the comment from Dick Sprinkler, although it uses the word “trapped” rather than “prisoner” (maybe the FCA didn’t like the term Michael Coogan invented!) the last paragraph in the Annex to the FCA’s Dear CEO letter ( says:

    “To give an example of the application of our rules in this area, we expect firms to be able to demonstrate to us how they have complied with Principle 6 in their treatment of ‘trapped’ customers. Our new evidential provision in MCOB 11.8.1E protects borrowers who find themselves ‘trapped’ with their current lender because they are unable to enter into a new mortgage (whether with their current lender or another lender) or vary the terms of their existing mortgage. Lenders should not treat those customers less favourably than other customers with similar characteristics through practices such as offering less favourable interest rates or other terms to take advantage of the fact that they are unable to exit the mortgage.”

  5. Borrowers are now realising that they should not go in blindly with mortgages. Criteria, rates and terms are always changing and therefore, the onus is on the borrower to ensure they can meet payments when waters get choppy. This is going to hit all the borrowers on the Help to Buy in 2 yrs time – hard.

    If you don’t like your lender, sell up, remortgage or hand they keys back to your lender.

    No one cares about if the lenders are making money Mr Grey Haired underwriter, what people care about most is what comes out of their current account to pay the overheads, and lenders are now playing dirty tricks.

  6. @ Ray Boulger

    The full transcript from MMR is detailed below (and was instigated last Oct unlike the rest of the MMR) – interesting that the regulator has done absolutely nothing about it when confronted with evidence of lenders acting in breach of precisely what this nonsense purports to protect against !!

    However, consumer representatives, and some intermediaries, were concerned about the
    risks of the unfair treatment of borrowers ‘trapped’ with their current lender, such as ‘price
    gouging’ (i.e. charging the borrower an unfavourable rate of interest to take advantage of
    the fact that they are not able to move to a different lender). They therefore saw the need
    for additional consumer protection, as they thought that relying on the principle of treating
    customers fairly or unfair contract terms breaches would not be enough. Consumer
    representatives saw the need for several specific amendments to the proposed transitional
    rules, including:
    • converting the draft guidance in CP11/31 at MCOB 11.7.7 into a rule, so lenders
    would be banned from treating mortgage prisoners less favourably than other
    borrowers; and

    PS12/16 Mortgage Market Review: Feedback on CP11/31 and final rules
    A1:18 Financial Services Authority October 2012
    • making it compulsory for lenders to use the transitional arrangements, rather
    than optional.
    Our response
    The changes we are making to the application of the affordability requirements
    for contract variations, as set out in Chapter 2, along with the revised transitional
    arrangements, will make it easier for lenders to help existing borrowers.
    We will continue to expect lenders to treat their customers fairly, in according
    with Principle 6 (‘treating customers fairly’). In response to feedback, we are
    strengthening the protection for existing borrowers, by changing the guidance
    to an evidential provision (MCOB 11.8.1E). Under this provision, if the existing
    lender takes advantage of a ‘trapped’ borrower or treat them any less favourably
    than other customers with similar characteristics – for example, by offering less
    favourable interest rates or other terms – then this may be relied on as tending
    to show contravention of Principle 6.
    As we explain further in the introduction, we are implementing this provision
    with immediate effect.

    Like I said a very big problem simmering below the regulators radar !

  7. Has your bank or building society increased the interest you pay on your tracker or standard variable mortgage in the last 18 months? If so, you really do need to read this as you can fight back –

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