A group of landlords who have fought a legal battle against West Bromwich Building Society since 2013 over its decision to raise rates on buy-to-let tracker motgages have won a landmark court battle.
The West Bromwich Mortgage Company – a now closed subsidiary of the West Bromwich Building Society – hiked charges on its tracker mortgages without a rise in the Bank of England base rate, the Appeal Court ruled in favour of the landlords affected.
Tracker mortgages are supposed to follow a set margin above the Bank of England’s base rate, which has been at a record low of 0.5% since 2009.
West Bromwich Building Society will now go about refunding £27.5 million to all of the landlords who were subject to the unprecedented mortgage rate hike.
As many as 6,700 landlords, who took out their mortgage with the society up to 2008, are in line for a refund of an average £4,000 each.
West Bromwich Mortgage Company contacted landlords in September 2013 to inform them that it would increase the set margin rate on their tracker mortgages from 1.49% over base rate to 3.49% from December.
This meant many saw their mortgage double from 1.99% to 3.99%.
At the time, the lender argued the increase reflected the rising cost of mortgage funding and that the changes were allowed under the terms and conditions of their mortgage agreement, which stated it could vary interest rates according to market conditions.
But Mark Alexander, a former mortgage broker who set up an advice website Property 118, countered that the rise was unfair as the base rate had not risen.
Property 118 launched legal action in the High Court in November 2013, backed by around 400 landlords.
The High Court ruled against Mr Alexander in January 2015, saying the lender was allowed to increase rates to handle changing market conditions.
However, the Court of Appeal’s decision has now overturned that verdict.
What West Bromwich Building Society says
In a statement, West Bromwich Building Society said it was ‘disappointed’ with the judgement.
It explained that, as savers had suffered a dramatic fall in income due to lower interest rates, the board had acted in its duty to treat all members fairly and moved to redress the balance.
However, the building society said it accepted the court’s decision and would contact all affected borrowers, including those not part of the action.
What the verdict means for other cases
David Lawrenson from advice website Letting Focus says the verdict paves the way for landlords take on other lenders like Skipton and the Bank of Ireland, which have made similar hikes on tracker mortgages despite the base rate remaining the same.
But the case, according to many leading commentators, will also set a precedent over how the wider mortgage market operates and how lenders can treat interest rates in the future.
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