Thousands of buy to let tracker mortgage borrowers have been dealt a severe blow by the Financial Ombudsman on the eve of a legal challenge over rate rises in the High Court.
Borrowers claimed that West Bromwich Building Society did not have the right to hike tracker mortgage interest rates while the official bank rate was pegged at 0.5%.
The lender put up interest rates by 2% for nearly 7,000 customers in September 2013.
The shock decision doubled mortgage repayments for many buy to let tracker mortgage borrowers.
As a result, a pressure group was formed that has funded a legal challenge against the decision due to be heard in the High Court next week.
However, the ombudsman agrees small print in the lender’s mortgage terms and conditions allows interest rate rises to “reflect market conditions and to make sure its business is carried out prudently, effectively and competitively”.
In one decision letter, seen by the Telegraph, the ombudsman explains that as the lenders regulatory capital requirements had changed, funding costs rose and market conditions had changed, its actions were justified.
“I am satisfied that the terms and conditions of the mortgage you have, allow West Bromwich to increase the interest rate in the way it has,” said the letter. “West Bromwich has satisfied us that there is a legitimate commercial reason for it doing so. It has not acted unfairly in changing the interest rate or in the way it has done so.”
In a damning blow for borrowers taking part in legal action, the ombudsman has confirmed complaints from them will be rejected alongside complaints from professional landlords.
The decision now leaves the way clear for other buy to let tracker mortgage lenders to raise their rates, providing they have similar terms and conditions as the West Bromwich loans.
The West Bromwich buy to let tracker mortgages were sold to landlords as a hedge against rate rises mainly prior to the credit crunch.
However, fast-changing economic circumstances meant the lender was losing money on the deals as interest rates plunged to 0.5%.
Borrowers argued that tracker rates were a fixed contract and the rate could only change when the underlying base rate changed, but the ombudsman disagrees.