The Bank of Ireland and Bristol & West have both jumped the rate of interest on their tracker mortgages by a huge amount, which will have a massive effect on the repayment rates that their customers will need to pay if they are either on a tracker mortgage or at the end of their fixed rate term.
The rates have almost doubled, meaning that there will be a huge difference in the total paid back by the customer at the end of the loan period.
The banks are blaming the changing global situations, sending letters to their affected customers that state: “Currently banks are required to hold more capital reserves, as part of measures to protect the banking system from the type of scenarios seen during the banking crisis. In addition, the cost of funding mortgages has increased significantly for Bank of Ireland and the market as a whole in recent years.
“Your loan agreement has a special condition which allows us to change the tracker differential for a number of valid reasons including the ones mentioned above.”
However, the banks have given consumers an out by waiving the early repayment fees they would face if they decide to move to a different mortgage. This is an offer that will no doubt be jumped upon by savvy borrowers, but those that are not on the ball enough to do this will find that they are paying back a much greater amount each month than they would otherwise have been.
Decisions like this are not made lightly, and so the bank must have decided that the amount it will get from customers who do not move accounts will be greater than the amount that they will lose. Seeing as the increase in some cases is almost 50%, this seems like a bit of a gamble.
However, it may be that the bank are also trying to make the loan as unattractive as possible as they are finding it difficult to draw a profit from it. By driving customers away, they will reduce their own costs in managing it and lower the amount of capital they are required to hold to balance the loans that they currently have issued.