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Bank of Ireland hikes mortgage costs for thousands, breaking base rate tracker

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Helen Knapman
Helen Knapman
News & Investigations Editor
28 February 2013

13,500 customers with a Bank of Ireland base rate tracker mortgage should brace themselves as rates will soar from 1 May, even though the base rate hasn't changed for four years. If hit, you can escape penalty-free.

Some customers will see a potentially crippling £500-a-month jump in costs.

Key Points

  • Bank to raise tracker mortgage rates despite base rate freeze

  • 13,500 will see costs jump from 1 May

  • Bank blames increased funding costs

Base rate trackers are supposed to track the base rate, hence the name, and only move up and down if that key financial indicator changes. The base rate has been 0.5% since March 2009.

Now Bank of Ireland has decided to break with this basic agreement, to the anger of borrowers.

One customer emailed us yesterday raging: "I am gobsmacked they can do this, let alone at such short notice."

He says his rate is rising from 2.25% to 4.99% from 1 May, taking his monthly payments from £456 to £556.

Even worse, forum user smiffy says: "My rate on my residential product is jumping from 0.89% to 4.49%. That's taking the interest payment from £243 to £780.

"I can fund a £100 per month increase I need to find over £500."

The bank claims its terms and conditions allow it to increase the differential between the base rate and the rate it charges homeowners on some tracker mortgages. Not all tracker borrowers have this clause, so not all are hit.

Bank of Ireland says anyone hit will be free to move mortgage without incurring any early repayment charges. However, tightened mortgage criteria and falling house prices in some areas mean not everyone will qualify for a new home loan.

Dan Plant, MoneySavingExpert.com head of editorial, says: "This is a shocking slap in the face, both for stretched borrowers and simple concepts of transparency and fairness. A base rate tracker has one very important quality… it tracks the base rate!

"This massive jump of nearly 3 percentage points is the exact opposite of what the bank's customers will have been expecting.

"The Financial Services Authority should take a very close look at this. Bank of Ireland is laughing in the face of its heralded Treating Customers Fairly principles, and costing its customers £1,000s in the crossfire."

Rate rises

Bank of Ireland has many different types of trackers with varying differentials between the base rate and the rate consumers pay.

All its customers will be moved to a differential of 2.49% from 1 May, meaning they will pay a 2.99% rate (0.5% + 2.49%). This will rise to a 4.49% rate (0.5% + 3.99%) on 1 October.

Buy-to-let customers will pay even more, sooner: their rates rocket to 4.99% (0.5% + 4.49%) from 1 May.

Bank of Ireland also runs the Post Office's mortgage business, but these customers are unaffected.

Last year, Manchester Building Society upped tracker rates for many customers who took out mortgages in 2004 or earlier. It meant some borrowers now pay 4.74% instead of their previous 0.99% rate.

It cited a condition in many contracts which it claims allows it to vary rates after five years.

A Bank of Ireland spokesman says: "This change reflects the significant increase in the cost of funding these mortgages since 2008 and the need for banks to maintain greater levels of capital."

Bank of Ireland mortgages

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