Bank of Ireland tracker rates hiked again

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Bank of Ireland

Bank of Ireland tracker mortgage customers are in for more bad news today, as they see their rate rise to the Bank of England base rate plus 3.99%. This is the second hike in their rate in less than six months, and comes despite the fact that the Bank of England has held rates at 0.5% for well over four years.

So what's going on and what can you do if you're hit by this hike?


Hikes

From 1 October, the Bank of Ireland has raised rates on 'lifetime tracker' mortgages taken out before 2004. In May, residential customers saw their rate rise from 2.25% (base rate plus 1.75%) to 2.99%. Now that rate has increased again to 4.49% - matching the rate for buy-to-let customers. That's a doubling of the interest rate in half a year.

Is it fair?

This seems unfair: after-all if a product is called a 'lifetime tracker', then surely you could be forgiven for expecting it to track the base rate for the lifetime of the mortgage.

However, it says that it is allowed to do this, because before October 2004, there was a clause in the small print which said that the bank can raise the rate if there is a significant change in the market which threatens the bank.

The clause states that it can change the differential - which is the difference between the base rate and the mortgage rate - saying: "We will only increase the differential under this paragraph if we believe the increase is necessary to maintain the viability of our business following a serious adverse change in market conditions or in the relationship between the base rate and the rate which we pay on the funds we raise in our mortgage lending business."

It says it needs the extra interest because of the financial crisis. It wrote to explain to customers, and said: "Banks are required to hold more capital reserves, as part of measures to protect the banking system from the type of scenarios seen during the banking crisis. In addition, the cost of funding mortgages has increased significantly for Bank of Ireland and the market as a whole in recent years."

What can you do?

Some customers have escaped the hikes. In May, after it announced plans to hike rates, the bank also unveiled the exceptions to the rule. These include 1,000 people who were using the flexible facilities on the loan who were sent a letter that could be taken to imply that the rate was set for the lifetime of the mortgage. The second group were 200 people who switched to the mortgage and got a letter saying there were instances when the rate could change, but failed to specify what those instances were.

If you are affected you can get in touch with the bank to see what arrangements you can make for paying your mortgage. The Bank of Ireland has also said that unhappy customers are free to move to other providers without having to pay the early repayment charge.

Which? is also calling on customers to make an official complaint to the bank, stating that it thinks the terms and conditions which allowed this rate hike in the first place were unfair. After the first wave of increases, some 300 people made complaints. These are currently with the Financial Ombudsman Service, which is expected to make a decision on them imminently.