With the Bank of England cutting its wholesale interest (bank) rate to historic lows and now the ECB slashing 50bps off its key rate (as well as remonstrating on the reduction in fragmentation across European nations), it is perhaps perplexing (or simply too obvious) that a bank would raise its mortgage rates. As the Daily Mail reports [4], government-owned Bank of Ireland (BOI) doubled mortgage rates for 13,500 customers in the UK leaving homeowners with huge increases in their monthly payments. The bank, exploiting small print in the legacy mortgage contracts, will hike the interest cost for 1-in-14 homeowners from 2.25% to 4.99% (raising the spread over the bank rate on these loans from 1.75% to 4.49%). Anger is rife as customers complain "it's all very frustrating," adding that they thought this was a 'tracker' mortgage but BOI defends their massive rate hike on increased funding costs and the need to maintain higher levels of capital. The disconnect between wholesale gorging provided by the Central Bank and wholesale gouging of the real economy grows ever wider it seems.
Thousands of homeowners are facing a huge increase in their mortgage repayments after the Bank of Ireland doubled rates overnight.
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... will affect some 13,500 UK customers,
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Which? accuses BOI of justifying the changes on the basis of 'clauses buried in the small print of mortgages' which were taken out before October 2004.
Which? executive director Richard Lloyd said this was 'wholly unfair' and said BOI was 'taking advantage of its customers by hiking rates at a time when the base rate is static'.
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A typical change will see a buy-to-let mortgage holder who is currently on a rate of 2.25% - made up of the base rate plus 1.75% - see it rise to 4.99% from today, representing the Bank rate plus 4.49%.
For residential customers, changes will be introduced in two stages. From today, they will pay the Bank rate plus 2.49%. On October 1, it goes up to Bank rate plus 3.99% - currently 4.49%.
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He said: 'It was sold and marketed as a tracker rate. I thought I had that margin for life. It's all very frustrating.'
BOI blames the rise on increase funding costs and the need for banks to maintain greater levels of capital. It has set up a phone line for anyone worried about the impact of the changes.
The changes affect seven per cent of BOI's UK mortgage customers, the lender has said.
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'This clause was clearly referenced in the pre-sale offer document provided to the customer and the customer's intermediary prior to completion.'
It said customers were free to move to other providers and no early repayment charges would apply.
However tightened mortgage criteria and falling house prices may mean some struggling to find new deals.
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