The landlords say the rate increase is 'unjustified' and point to the Bank of England base rate being kept on hold for more than four years.
Around 6,700 customers are affected by the tracker rate rise and the building society says its rates must increase because wholesale costs for funding buy-to-let mortgages have soared recently and its terms and conditions allow it to make such a change.
In addition, while the market expects base rates to be increased in 2016 by the Bank of England, long-term interest rates are now rising in anticipation of that move.
A spokesman for the building society said: “Since buy-to-let mortgages were taken out, market conditions have changed significantly which has resulted in an increased cost of funding them.”
He added that landlords have also seen a dramatic drop in interest payments to match falling mortgage rates and if the landlords had not reduced rents to match the falling borrowing costs then their income would have increased dramatically in that time.
Now many of the West Bromwich’s buy-to-let landlords are mulling over their legal action threat that also raises questions over whether they will increase rents to help cover higher mortgage rates.
It is believed that around 1,000 landlords from an online forum called Property 118 are looking to join forces to launch their legal action.
One firm that is watching these proceedings closely is a firm of solicitors called The Law Department which is already representing Bank of Ireland customers who have been hit by two unexpected tracker rate increases this year.
A spokesman for the firm said that lenders had not been clear in their dealings with customers about the rate rises and the other lenders look set to increase their tracker rates too.
The West Bromwich Building Society is not the first to increase its buy-to-let mortgage rate after the Bank of Ireland led the way back in May.
That’s when 13,500 customers saw their rates increased and they were hit again in October when the bank pushed up its rates.
Now one expert from the independent mortgage broking firm John Charcol echoes what The Law Department is saying in that other lenders look set to follow suit and hike their tracker rates too.
Ray Boulger says that many more people with fixed term tracker mortgages could face interest rates hikes in the near future.
He explained: “The buy-to-let market is not regulated by the Financial Conduct Authority which means that some lenders, including the West Bromwich, believe they may get away with things that they would not try on with the residential mortgage market.”
He said that if they do succeed in pushing up the rates than other lenders are bound to increase their buy-to-let mortgage tracker rates as well.
