West Bromwich Building Society has lost a court case over varying mortgage interest rates for buy to let landlords whose loans tracked the Bank of England base rate.

The lender offered buy to let mortgages on the basis that the interest rate would rise by a fixed amount against the Bank of England base rate.

Despite the base rate sticking at a record low of 0.5% from March 2009, the lender hiked the rate by close to 2% in December 2013.

West Bromwich claimed mortgage terms and conditions allowed a rate rise to reflect market conditions even though the official interest rate was unchanged.

The lender won a legal challenge at the Commercial Court against an action group of 350 landlords.

The decision was appealed and overturned in the Court of Appeal.

The West Bromwich was ordered to compensate around 6,000 landlords who had to pay extra mortgage costs as a result of the lender’s action.

This cost to the lender is estimated at £27.5 million.

West Bromwich SEO Jonathan Westhoff said:

“We are disappointed by today’s decision. At all times we acted to ensure we were treating customers fairly and that our approach was in the best interests of the society and its members as a whole.

“We will now contact all affected borrowers and ensure we process promptly any reimbursement they are due. In line with our prudent approach to managing the society we had already allocated capital to cover this unexpected outcome and so the society remains in a strong financial position.”

West Bromwich shares, which were suspended at one point pending the court ruling, dived by 19% after the cost implications were announced.

The lender has admitted reimbursing landlords will put the building society into a full-year loss.

As a result of the West Bromwich case, buy to let landlords are also considering similar actions against the Bank of Ireland and Skipton Building Society’s Amber Home Loans. Both allegedly raised tracker rates without a corresponding Bank of England rate increase.