Bank of Ireland has massively hiked tracker mortgage rates, which are meant to track the base rate, which hasn't moved in four years. Prominent consumer lawyer Mike Dailly, from the Govan Law Centre, says it may be acting oppressively. Here, he urges victims to fight back.
The proposed doubling and tripling of Bank of Ireland's (BoI) base rate tracker from May has caused shock and outrage among its 13,500 mortgage customers in the UK.
As many of them get to grips with how they will find the many hundreds of unexpected pounds needed each month to stave off repossession, is BoI entitled to do this? On the evidence, I don't think it is.
The reason for the increase has been set out in letters from BoI’s UK branch, which trades as Bank of Ireland Mortgages.
What's BoI's justification?
Under the heading, "Why are we doing this?", consumers are told: "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."
In the same letter to customers, BoI explains its UK mortgage business is strong and not in any financial difficulty.
It's not down to the base rate
The hike is not connected to the base rate, which remains at 0.5%. Rather, we're told the increase comes from the BoI's right to increase its "differential rate" between the base rate and what it charges customers, under a special term in contracts.
The special term says: "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."
Banks don't have to raise funds quickly
A key question, then, is has there been a "serious adverse change" in market conditions, or in the relationship between the base rate and the rates BoI pays?
In January this year, it was reported banks had won major concessions from the Basel group – a global regulator which sets the amounts of money banks need to hold in reserve to make sure they don't collapse.
New rules won't come in until 2015 and will be phased in until 2019.
Raising money isn't more expensive
As regards the cost of buying funds, what has changed?
Certainly, no other UK banks are imposing hikes like BoI. There has been no serious adverse change in market conditions this year – just more of the same.
The base rate remains at 0.5%, and the phasing in of the liquidity rules is designed to ensure banks can continue to lend and aid the economic recovery.
This appears oppressive and unfair
On the facts, it's hard to see how BoI can demonstrate any "serious adverse change" to justify its big interest rate hike.
There must be a cogent case for suggesting BoI is operating its special condition in an oppressive, unclear and unfair manner. If so, this may be contrary to the Financial Services Authority's principle of treating customers fairly.
Separately, it may also be contrary to the unfair terms in consumer contract regulations. How can it be fair to triple interest rates now when new capital rules won't be fully in place until 2019?
For BoI "mortgage prisoners", who may be stuck, unable to move because it is so difficult to get a mortgage, this change may well fall foul of the FSA's new "evidential mortgage prisoner" rule.
Those customers with very high loan-to-value mortgages, who are unable to switch, will be the worst affected.
There's no evidence — so complain
BoI's special condition reads to me as an exceptional, fail-safe provision, and it has failed to give its customers evidence of any exceptional circumstances.
Clearly, customers have a right to complain to BoI. If they remain unsatisfied after eight weeks, they should go to the Financial Ombudsman Service [MSE insert: see our Financial Rights guide for how to fight back].
MPs on the Treasury Select Committee have got their teeth into this issue, so watch this space.
Views expressed are not necessarily those of MoneySavingExpert.com.