Halifax borrowers in mortgage squeeze
Halifax tracker borrowers face seeing their interest rate increase even if the Bank of England base rate does not, thanks to a clause in its terms and conditions.
Like several lenders, Halifax reserves the right not to pass on base rate falls below a certain level – 3% in its case. However, it is unique in the fact that it reserves the right to revert to the normal technique of pricing trackers - and therefore increase the rate borrowers pay.
For example, if a tracker mortgage borrower pays Bank of England base rate plus 1%, and the base rate is 3%, then their pay rate will be 4%. If the base rate falls to 2% then Halifax does not have to pass on this 100 basis point saving, meaning the borrower continues to pay 4%.
If the base rate then rises back to 3% Halifax reserves the right to increase the pay rate by a full percentage point – meaning the borrower’s pay rate is now 5%.
So, although their mortgage is base rate plus 1%, they are actually paying base rate plus 2%.
Ray Boulger, senior technical manager at John Charcol, doesn’t believe this clause is fair on customers as they could end up paying a whole 1% more for their mortgage even if base rate is at 3%.
“Banks are required by the Financial Services Authority to treat customers fairly, but this does not seem to fit with that obligation,” he adds.
A spokeswoman for Halifax says the clause has been in place since 2001.
“While other organisations don't have this specific condition they often have a different condition that allows them to change the interest rate payable at any time,” she adds.
“Ours is spelt out in detail to ensure customers know what they are buying. The decision on whether to exercise the option would critically depend entirely upon the prevailing market at the time.”
With a tracker mortgage, the interest you pay is an agreed percentage above the Bank of England’s base rate. As the base rate rises and falls, your tracker will track these changes, and so rise and fall accordingly. If your tracker mortgage is Bank of England base rate +1% and the base rate is 5.75%, you will be paying 6.75%. Tracker rates are lower than lender’s standard variable rate (SVR) and as they are simple products for lenders to design, they usually come with lower fees than other mortgage schemes.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.