Regulator to clampdown on tracker rate changes

The Financial Conduct Authority (FCA) has signalled a possible crackdown on mortgage lenders which change tracker rates despite no change to the Bank of England base rate.

The Times has reported that FCA chief executive Martin Wheatley has written to bank and building societies as the regulator reveals that several lenders are seeking to follow Bank of Ireland and West Bromwich Building Society in hiking tracker rates.

The lenders have used get-out clauses buried in the fine print of mortgage deals to increase rates on tracker mortgages despite the Bank of England base rate having remained at 0.5% for more than four-and-a-half years.

Around 6,700 West Bromwich borrowers with buy-to-let mortgages face a rate rise of 2% on 1 December. A number of the affected landlords have grouped together to launch a legal challenge against the move.

Bank of Ireland borrowers are also seeking legal advice after the bank wrote to 13,500 buy-to-let and residential borrowers on tracker mortgages in February saying their rates would be hiked.

About 2.5 million people in Britain have tracker mortgages, where the interest rate supposedly tracks the base rate. Many lenders are losing money on these deals, some of which were set before the base rate fell to 0.5% in March 2008.

“A number of mortgage lenders have engaged with us recently about changing their mortgage contracts, including standard variable rates,” Wheatley says in the letter to lenders, which then warns bank chiefs that changes to mortgage terms could breach consumer law and the FCA’s principles for businesses.

The FCA is publishing a discussion paper on tracker rates next year. Industry experts are already concerned that any sharp rise in the base rate could leave many households struggling financially.