How to deal with mortgage rate rises

Bank of Ireland borrowers had a nasty shock last week. It turns out that buried in the small print of the contracts of those with tracker mortgages is a clause that allows the bank to change their tracker rates at will. Which is exactly what it has done.

The bank has changed what it calls the "differential" with the Bank of England's rate, so that residential customers will see their deals jump from 1.75% over the Bank rate to 2.49% above. That will take their interest rates from 2.25% to 2.99%. The margin will then leap again in October to 3.99%, making the final interest rate 4.49%, and they will see the rise come all in one go. Buy-to-let borrowers will be even worse hit their final rate will be 4.99%.

But even that isn't as bad as it gets. The Guardian points to some cases in which interest rates will increase from 1.39% to 4.49% pushing at least one customer's bill from a mere £243 a month to £780 a month. Nasty, isn't it?

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But however furious, if not surprised, the idea of a bank rummaging around in its small print to find a way to raise prices might make you, if you have a tracker mortgage, you might want to run a health check on your own finances.

Why? Because according to Charcol's Ray Boulger, many other lenders also have "exceptional circumstances" clauses in their small print that could allow them to raise rates just as the Bank of Ireland has even if the Bank of England keeps the Bank rate flat.

So what can you do if it happens to you or has just happened to you? First, says Ali Hussain in The Sunday Times, you might have a go at challenging the new deal. The banks have an obligation to be "fair, clear and not misleading" in their communications. Perhaps you think that in this case Bank of Ireland has not quite lived up to this ideal. If so, call their dedicated support line (0800-345 7512).

Then, if that does you no good (which it probably won't), you can write to them and if, after eight weeks, you don't get what you consider to be a satisfactory response, you can then complain to the Omsbudsman.

Otherwise, you can move Bank of Ireland is waiving early repayment charges for anyone who would like to go (which gives you a clue as to what they would like you to do!).

The cheapest tracker on the market at the moment comes from First Direct (part of HSBC) at 2.38% (with a £1,699 fee), while the best fix, says Hussain, also comes from HSBC (two years at 1.79%).

Finally, I suppose all mortgage holders might count their blessings to some degree. The borrower mentioned above the one who has seen his rate rise from 1.39% to 4.49% might be feeling cross now. But guess what his interest rate was when he first took his mortgage out? 5.14%. His mortgage is still going to cost him less every month than it did in 2004.