There was victory for a group of mortgage borrowers last week when Court of Appeal judges ruled West Bromwich Building Society had wrongly upped interest rates for about 6,000 customers.
However, despite the legal wrangle being described as a ‘David and Goliath’ type duel, not everyone was pleased for the little people winners.
That’s because the borrowers concerned were landlords, a group which is fast becoming one of the most vilified sectors of society.
But if the buy-to-let critics could put their prejudices aside for a moment they’d see that a victory for landlords this time is a win for consumers everywhere.
The court case came about after a controversial decision by West Brom back in 2013. It had flogged ‘tracker’ mortgages to the landlords. These are home loans which, as the name suggests, track a particular rate – in this case the Bank of England base rate. If the base rate goes up so does the mortgage rate, if it goes down, so does the mortgage rate. A bit of a gamble – remember when the base rate hit 15 per cent in the 1980s – but the terms were clear. Or were they?
Millions of people took a punt on trackers a decade or so ago when interest rates were up and down. I was one of those to put their house on it, so to speak.
The last time the bank rate rose was in July 2007 and it started falling in December of the same year. It was in March 2009 when the bank rate was reduced to 0.5 per cent – and it’s stayed there ever since.
Those borrowers on lifetime trackers have been laughing all the way to the shops/travel agent/car dealership. They took a gamble and it paid off. Good times.
The trouble was that West Brom, and doubtless other lenders, had inserted a small print clause which, under certain circumstances, enabled it to change the interest rate ‘to something more in line with the current market norm’.
The building society used this clause to justify whacking up tracker interest rates for selected customers by two percentage points. Some borrowers saw their pay rate doubled.
Naturally, the affected customers – all landlords – were furious. Wouldn’t you be? They weren’t being treated fairly. If rates had gone up, they’d have paid more. The base rate stayed the same but West Brom charged them extra anyway.
Should companies be allowed to sell a product saying it does one thing but have a tiny clause saying it doesn’t really? No, of course not.
Whether you love or loathe landlords, a win in court for them was the right decision. West Brom now has to repay the affected borrowers £27.5 million which some people are describing as a ‘windfall’ rather than a completely justified refund.
The ruling sends a clear message to other mortgage lenders which might have considered following suit. I don’t doubt for a moment that other lenders have similar small print that gets them off the hook somehow.
A quick check, admittedly sometime after signing the document, of my own mortgage terms and conditions shows my lender, Barclays, has its own base rate. The Barclays Bank Base Rate ‘typically follows the Bank of England Bank Rate but it is not guaranteed to do so’.
So far it has done but I wouldn’t be happy if Barclays decided to hike up the rate on my mortgage. Neither would millions of other borrowers with West Brom, Barclays or any other lender. But now, following a class action by a group of landlords, they’re much less likely to.
And that’s why this win for landlords is a win for everyone.
Emma Lunn is a freelance personal finance journalist