A major case came to a successful conclusion for a group of landlords last week, when they won their case against a building society on appeal. The decision marked the end of a long fight that began when the West Bromwich Building Society increased the rates applied to tracker mortgages held by some of their customers. This occurred in December 2013. Some two-and-a-half years on, campaigner Mark Alexander, a major property investor, won the case he had taken to appeal along with 350 other landlords who were affected.
The building society decided to increase the interest rate applied to tracker mortgages back in December 2013. The bank rate – on which such interest rates should be calculated – had been sitting at 0.5% since the beginning of 2009. A tracker mortgage essentially tracks that rate, and despite the fact no change had occurred, they decided to increase the rate applied to the mortgages by nearly 2%. As a result, some borrowers suddenly found their mortgage payments had doubled.
Why did they change the rate?
A tracker mortgage tracks the base rate, and therefore if the base rate were to rise, so would the interest rate attached to a mortgage of this type. In reality, then, the building society should not have been able to raise the interest rate since the base rate had remained the same for several years.
However, the small print on the mortgages included a clause that allowed them to change the rate if it was necessary “to reflect market conditions”. This was the clause the building society argued allowed it to increase the interest rate.
Initially, the Commercial Court found in favour of West Bromwich Building Society because of that clause. However, the opposition was allowed to appeal and it did so, leading to the case reaching the Court of Appeal this month.
Needless to say, the building society is unhappy the case has been lost. However, those who brought the case are delighted the ruling was overturned on appeal. As a result of the case, the building society cannot now call in any of the loans affected, and cannot vary the interest rates applied to them. It also means the borrowers that were affected by the change will receive reimbursements. This is thought to amount to around 6,250 borrowers.
As the mortgages were taken out by landlords, some of those affected will receive reimbursements on more than one mortgage held with the society. In a statement, they said they had already allocated funds that would cover the payments if the case was found in favour of the landlords. They were keen to announce the society was still in a strong position from a financial point of view.
No doubt this case will make other lenders and borrowers sit up and take notice. This is particularly true of those with tracker mortgages, regardless of the terms and conditions in place for each of them.