Date Published 26 September 2013
A buy-to-let lender has written to 6,700 borrowers– one quarter of its entire landlord loan book – telling them it will be hiking their rates by 2% this December.
The move has evoked fury, with concerns that the extra costs will simply be passed on to tenants in the form of higher rents.
The West Bromwich Building Society is targeting the hike at ‘professional` landlords only – those owning three or more properties – on ‘lifetime` tracker deals.
They took out loans which are meant to track the base rate by a set premium once their fixed-rate period has ended – as, in the case of the 6,700 borrowers, all have done.
Those paying1.09% (0.59% above base rate) will soon be paying 3.09%. Those paying 2.69% will be paying 4.69%. It means that on a £150,000 interest-only loan, payments will go up by £250 per month to £386.25 and £586.25 respectively.
West Bromwich Building Society`s move follows that of Bank of Ireland, which hit 13,500 borrowers, including buy-to-let landlords, with a rates hike even though they too thought their tracker mortgages were at a set premium.
The financial ombudsman has received some 300 complaints about Bank of Ireland, which has defended its action saying that it was able to raise the rate thanks to a term and condition in the small print.
It is now thought that other lenders will follow the example of both Bank of Ireland and West Bromwich.
The building society, which has 36 branches, lost £9.4m in the last financial year and is unlikely to return to profitability before 2016, although it is due to move into smart new headquarters in 2015.
West Bromwich says that its hiking of rates for ‘professional` buy-to-let landlords will generate an extra £15m a year – less if borrowers take their business elsewhere. The society is waiving exit fees until next March.
Landlord and buy-to-let author David Lawrenson expressed his dismay. He said most borrowers would have assumed that the tracker rate had been set at a fixed amount for the life of the mortgage.
He also said: `How can a lender know that landlords were professionals, and not amateur or accidental landlords, when they applied for the mortgages?`
Lawrenson hit out at comparison sites, saying they should not list mortgages as `lifetime trackers` when lenders had get-out clauses.
Lawrenson, also a private rented consultant at LettingFocus.com, warned that other lenders that might follow with hikes include the Barclays brand Woolwich, which links its buy-to-let tracker rates to Barclays, rather than Bank of England rates. While these until now have always been the same, Lawrenson said that this could change.
He added: `BM Solutions have a wide set of get-out clauses too but borrowers do not see these until the mortgage offer is actually received, which is after the borrower has paid the valuation fee. This may be true for other lenders.`
Andrew Montlake, of mortgage brokers Coreco, said of West Bromwich`s hike: `This is another disappointing move from a lender which, like the Bank of Ireland`s ongoing changes, will serve to further infuriate buy-to-let landlords who felt secure on a specific product.
`It does nothing to improve the trustworthiness of lenders and shows that lenders have the power to do what they want, when they want, often at the expense of their customers` best interests.`
Another broker, Aaron Strutt of Trinity Financial, suggested the move might backfire, saying: `I am not sure I would be applying to the West Brom Building Society for a mortgage when it is hiking rates by 2%.`