Bank doubles its mortgage rate: what's going on?

Bank of Ireland

Thousands of mortgage holders are about to see the interest rate on their borrowing increase massively - despite the fact that we have just seen the 4th anniversary of the Bank of England base rate falling to 0.5%.

So how can this be right? And will other firms follow suit?

Rates hike

The mortgages in question are those from the Bank of Ireland and Bristol and West. Residential customers on a tracker rate are currently paying 2.25%. They will see that rise to 2.99% in May and to 4.49% in October. Buy-to-let customers, meanwhile, will see their rate double.

It is thought that 13,500 customers will be affected by the move.

The banks have written to customers, explaining that they are being required to hold more cash in their reserves, plus the cost of funding mortgages has increased. They point out that the small print on their tracker mortgages includes a clause that allows for hikes under circumstances like these.

Time to move?

The banks also said that anyone who chooses to remortgage to escape the new costs will not have to pay early repayment charges. There are several options out there which are far more competitive. Norwich and Peterborough Building Society, for example, has just launched a two year fix at 2.24%, while Yorkshire Building Society has one for 2.64%.

However, this will be no help at all to those who find themselves back out in the mortgage market in difficult circumstances - this could include those with little equity in their property, or whose employment situations have changed since they took the mortgage out. They may find themselves unable to get another deal, so they have no choice other than to find hundreds of pounds more every month for their mortgage repayments.

For buy-to-let borrowers, who have based their rental charges on the cost of their repayments, this could tip them over into losing money, and force them to sell up.

Factors damaging property value
See Gallery
Bank doubles its mortgage rate: what's going on?

Pre-recession, homeowners would give little thought to the idea that local repossessions could affect the value of their home. 101 repossessions were recorded every day during the third quarter of 2011 and it has become a real concern.

A new crime map introduced in March 2011 was welcomed by buyers, but approached with trepidation by homeowners concerned about the impact on local property values. The map allows users to view crime statistics online by postcode to find out the crime rates and types of crime in any area.

It is widely recognized that schools with a good reputation increase competition and property demand within a local area, which in turn increases the values of property within the catchment area. Lose the school and the demand will cease too.

The devastation caused by flooding in recent years doesn't appear to paint a positive picture for homeowners faced with the financial and emotion cost of a huge clean up, insurance complications and the potential damaging effect on property values.

The proposed high speed rail link is depressing house prices for thousands of homeowners on the route and many homeowners feel helpless to stop tumbling property values.


Wider market

This is not the first lender to take this approach. Last year the Manchester Building Society raised tracker rates for those who had taken a mortgage out before 2004. For some people it meant the rate soared from less than 1% to 4.74%.

However, the good news is that the general trend appears to be going in the opposite direction. The government's Funding for Lending scheme has gradually been pushing prices down. The interest rates on both fixed and tracker mortgages has been falling slowly - although the best deals remain for those with large deposits

For those with smaller deposits things are looking up too, as the number of mortgages available is rising, the rates are falling, and banks are easing up slightly on the strict rules they apply before considering someone for a new mortgage.

It seems, therefore, that these banks are the exception to the rule so far. The message for borrowers is that if they are in a position to look elsewhere, they could end up with a better deal.

The only note of caution is that fees are on the up too - so make sure you factor them in when you're calculating whether it's worth shifting to a better deal or taking the pain being doled out by the Bank of Ireland and Bristol and West.

10 consumer rights you should know
See Gallery
Bank doubles its mortgage rate: what's going on?

The law states that any goods you buy from a UK retailer should be of satisfactory quality, as described, fit for purpose and last a reasonable amount of time.

This applies even if you buy items in a sale or with a discount voucher. You may have to insist on these rights being respected, though.

Useful phrases to use when you want to show you mean business include, "according to the Sale of Goods Act 1979" and, if it's a service, "according to the Supply of Goods and Services Act 1982".

Some shops will allow you to exchange goods without a receipt, but they can refuse to should they wish.

If the goods are faulty, however, another proof of purchase such as a bank statement should work just as well.

If you attempt to return goods within four weeks of the purchase, your chances of getting a full refund are much higher as you can argue that you have not "accepted" them.

After this point, you can only really expect an exchange, repair or part-refund.

The updated Consumer Credit Act states that card companies are jointly and severally liable for credit card purchases of between £100 and £60,260 (whether or not you paid just a deposit or the whole amount on your card).

Anyone spending between these amounts on their credit card is therefore protected if the retailer or service provider goes bust, their online shopping never arrives or the items in question are faulty or not as described.

Start by writing to the agency asking it to either remove or change the entry that you think is wrong. It will investigate the matter and find out whether you have been the victim of ID theft or a bank's mistake.

Within 28 days from receipt of your letter the agency should tell you how the bank has responded. If the bank agrees to change the entry, they will authorise the agency to update their records. They should also send updates to any other credit reference agencies they use.

You can also contact your lender directly to query a mistake. If the lender agrees to the discrepancy, ask them to confirm this in writing on their letterhead and send a copy to the agency, asking them to update your file.

The FOS settles disputes between financial companies such as banks and consumers.

If a financial organisation rejects a complaint you make about its services, you can therefore escalate that complaint to the FOS - as long as you have given the company in question at least eight weeks to respond.

The FOS will then investigate the case, and could force the company to offer you compensation should it see fit.

Bailiffs are allowed to take some of your belongings to sell on to cover certain debts, including unpaid Council Tax and parking fines.

They can, for example, take so-called luxury items such as TVs or games consoles. However, they cannot take essentials such as fridges or clothes.

What's more, they can only generally enter your home to take your stuff if you leave a door or window open or invite them in.

You are therefore within your rights to refuse them access and to ask for related documents such as proof of their identity. If they try to force their way in, you can also call the police to stop them.

Private sector debt collectors do not have the same powers as bailiffs, whatever they tell you.

They cannot, for example, enter your home and take your possessions in lieu of payment.

In fact, they can only write, phone, or visit your home to talk to you about paying back the debt. As with bailiffs, you can also call the police if you feel physically threatened.

Thanks to the Distance Selling Regulations, you actually have more rights buying online or by phone than on the High Street.

You can, for example, send most goods back within a week, for a full refund (including outward delivery costs), even if there's no fault.

You will usually need to pay for the return delivery, though. The seller must then refund you within 30 days.

We enter into contracts all the time, whether it be to join a gym, switch energy supplier or take out a loan.

In most cases, once you've signed a contract, you are legally bound by it. In some situations, however, you have the right to cancel it within a certain timeframe.

Credit agreements, for example, can be cancelled within 14 days. And online retailers must tell you about your cancellation rights for any contract made up to stand up legally.


More stories
Read Full Story