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West Bromwich Building Society is accused of ripping off landlords
Lender accused of rip-off over buy-to-let deals: Building society accused of raising rates on a 'whim' to boost its coffers
- Building society illegally ramped up rates for buy-to-let customers
- West Bromwich Building Society is accused of ripping off landlords
- The changes are believed to have affected 6,200 customers
A building society illegally ramped up interest rates for thousands of its buy-to-let customers on a ‘whim’ to boost its coffers, a court heard yesterday.
West Bromwich Building Society is accused of ripping off landlords with tracker mortgages by increasing their rates by two percentage points without warning.
Tracker mortgages are supposed to follow the Bank of England’s base rate, which has remained at an historic low of 0.5 per cent for almost six years.
But the building society shocked customers when they ramped up their rates in December 2013, pushing some from 1.99 per cent above the base rate to 3.99 per cent.
Customers were told their rate had been hiked because of ‘market conditions’ and to ensure it was running its business ‘prudently efficiently and competitively’.
But property investor Mark Robert Alexander, who took out a mortgage with West Bromwich in 2008, objected and has now taken the case to the High Court on behalf of 350 other disgruntled landlords.
The changes are believed to have affected 6,200 customers, but the outcome of the court case could have implications for tens of thousands of buy-to-let landlords on similar contracts with other lenders.
Mr Alexander said their tracker rates should be protected under the terms of their mortgage agreement.
But the building society said they were able to override these ‘personalised’ terms and activate their standard mortgage offer conditions which, they claim, granted them the right to vary a tracker rate if they felt it was necessary.
An avalanche of complaints to the Financial Ombudsman Service followed and 356 of the building society’s customers, including Mr Alexander, formed the Property 118 action group and commenced legal proceedings.
Yesterday, Mark Smith, representing the claimants, told Mr Justice Teare that the building society’s actions were unfair and that the clauses in the mortgage contracts used to justify the rate hikes are ‘inconsistent’.
The court heard that when Mr Alexander, an investor with a string of buy-to-let properties, entered into the mortgage, he believed it was a fixed rate of 6.29 per cent for four years, followed by a tracker at base rate plus 1.99 per cent until the end of the mortgage term.
He was shocked when he received the letter telling him the 1.99 per cent rate would go up to 3.99 per cent and outraged when they referred him to a clause in their standard mortgage conditions, stating any unfixed mortgage rate ‘may be varied by (us) at any time’, in a similar way to a standard variable rate.
Mr Smith said the so-called standard terms now relied upon by the building society had been merely ‘grafted on’ to the personal terms of the offers, and should not now be allowed to carry more legal weight.
Outside court, Mr Smith warned that if the building society won the case, it could give them the green flag to do the same to residential mortgages.
Mark Smith, representing the claimants, warned: ‘They are saying they can just move the rate to make themselves solvent, and residential mortgages will be next.’
But the building society said consumers were not subject to the same terms and conditions and insisted this would not happen.
The West Bromwich claimed it had only used its discretion to vary the tracker rate for customers who own a portfolio of three or more buy-to-let properties.
Raymond Cox QC, for the building society, defended the decision to up the rate for Mr Alexander, 47, and his wife Svetlana, 41, plus thousands of others.
He said the building society’s right to vary the interest rate ‘was repeatedly made clear in the documents sent to Mr Alexander’.
The barrister also said the move had been reviewed by the Financial Ombudsman Service (FOS) which had so far backed the building society in every complaint from the action group.
He insisted that the claimants are not trapped in their mortgages, as they have the option to pay their loans off early at any time, with one month’s notice
‘The mortgage could be terminated early either by the claimant or the defendant... if the claimant did not like the margin as varied,’ he said.
But he confirmed outside court that millions of others could potentially endure similar ‘whimsical’ rate increases from their own providers should the West Bromwich win the case.
Mr Cox said after the hearing: ‘If we win our case then, going forward, if people have tracker mortgages under the same terms, then other mortgage providers could do the same as us.’
The court heard that the interest rate hike has now been reduced from 2 per cent to 1.5 per cent.
The hearing continues.