West Bromwich Building Society has lost an Appeal Court battle over whether it was right to raise interest rates on tracker mortgages without a rise in Bank of England base rate.
The case sets a precedent over how the wider mortgage market can treat interest rates.
Handing down the judgment today, Lord Justice Hamblin ruled that interest rates on tracker mortgages should only rise with Bank of England base rate, and West Brom cannot require a landlord to repay the mortgage with one month’s notice.
Lord Justice Leveson and Lady Justice Sharp agreed with Hamblin’s decision.
The case began when landlord group Property 118 questioned a decision by West Brom to increase its tracker rate in September 2013 without a base rate rise.
At the time the lender told 6,700 landlords it would increase rates from 1.49 per cent to 3.49 per cent from 1 December 2013. The borrowers all had loans with West Bromwich Mortgage Company, its now defunct specialist lending arm.
The lender said the increase reflected the rising cost of mortgage funding, and the firm had no choice but to raise rates. West Brom said the changes were allowed under the terms of their mortgage agreements.
The tracker mortgages had been advertised as products that would mirror base rate, but the lender argued its terms and conditions allowed it to vary interest rates according to market conditions.
The rise meant some landlords saw the interest rate on their mortgages double.
Property 118 said the rise was unfair as base rate had not risen. The body then launched legal action against West Brom in the High Court in November 2013.
Separately, angry landlords took their cases to the Financial Ombudsman Service. However the FOS threw the cases out in November 2014, saying the lender was allowed to raise its rates.
Judge Nigel Teare of the High Court then sided with West Brom in January 2015, saying the lender was allowed to increase its rates to handle changing market conditions.
Teare threw Property 118’s case out, saying West Brom could vary its interest rates without a base rate rise to reflect market conditions and was also allowed to call in loans with one month’s notice.
But Property 118 won the right to appeal on 28 April.
The landlord group wanted a court order to force West Brom to allow affected borrowers to go back to paying interest rates at base rate plus 1.99 per cent.
Property 118 also wanted the appeal to scrap West Bromwich’s contested right to call in its loans with one month’s notice, and also want the lender to repay all its borrowers’ overpaid amounts, with interest.
More to follow…