Homeowners in Northern Ireland with tracker mortgages may soon face an enormous squeeze on their family finances after one of our biggest banks hiked its rates.
The grim news comes after a shock rise in interest rates by the Bank of Ireland (BoI) yesterday, affecting 13,500 UK households.
Some borrowers — including those who took out ‘lifetime’ deals — will see their monthly repayments doubling as a result of the steep price rises.
The BoI has defended its decision, saying that customers were warned about the possibility of such increases in their contract’s small print.
However, economist John Simpson warned this development could open the floodgates for other banks to hike their rates over the coming months. He said: “There could be many thousands of people who could find that they’ll have to reconsider how they manage their household finances as the price of mortgages edges upwards — which it will.”
The BoI tracker rise affects 550 customers in Northern Ireland, with two-thirds (or more than 360) of the mortgages linked to buy-to-let properties.
The development will also potentially affect many others who currently live in rented accommodation, as landlords may have no option but to put up rents.
Which?, the consumer watchdog, has accused the BoI of taking advantage of customers at a time when the Bank of England base rate is at an historic low of 0.5%.
“Bank of Ireland is taking advantage of its customers by hiking rates at a time when the base rate is static,” said Which? director Richard Lloyd. “We encourage anyone affected who lives in Northern Ireland to complain if they were led to believe they had bought a ‘lifetime’ mortgage.”
Nicola McCrudden, from the Housing Rights Service, said: “There has been an unprecedented demand for our service from people falling behind with mortgage and rent payment.”
A spokesperson for BoI said: “This increase is permitted by a specific clause in these mortgage contracts, which allows an increase in the interest rate differential after the guarantee period (ie after December 31, 2006).”
A typical change will see a BoI buy-to-let mortgage holder who is currently on a rate of 2.25% — made up of the base rate plus 1.75% — see it rise to 4.99% from today, representing the Bank rate plus 4.49%.
For residential customers, changes will be introduced in two stages. From today, they will pay the bank rate plus 2.49% then, on October 1, it goes up to Bank rate plus 3.99%, currently 4.49%.
A tracker mortgage is a type of variable rate mortgage. The interest rate tracks the Bank of England base rate at a set margin (for example, 1%) above or below it. Tracker mortgage deals can last for as little as one year, or as long as the total life of the loan. Once your deal comes to an end, you're likely to be automatically transferred on your lender's standard variable rate (SVR). Typically, this will have a higher rate of interest. Consumer watchdog Which? has set up a free online tool to make it easy for people to complain directly to the Bank of Ireland, at www.which.co.uk/bankofireland