The ruling delivered today against the building society will see some 6,000 borrowers receive a refund, the Telegraph reported.
Borrowers will be collectively reimbursed £27.5m, while the lender has also agreed to re-set mortgage rates at a lower level. The decision to reimburse will see the lender make a loss for the year to March 2017, it said.
A ruling in January last year saw the High Court deliver a judgement in favour of the West Brom, with Mr Justice Teare stating that the lender was within its rights to increase the premium on the rate it charged above Base Rate.
Tracker mortgages contain a clause allowing lenders to change the mortgage interest rate under certain circumstances. With no rise in the Bank Rate of 0.5% since 2009, West Brom had argued that its savers had suffered a dramatic fall in income due to lower interest rates, leading the lender to “act accordingly”.
However, the Court of Appeal ruled that the relevant clause was inapplicable in such cases.
Some 350 landlords, led by property investor Mark Alexander of Property 118 Action Group, also complained that the letter sent to borrowers in September 2013 contained a “veiled threat” that West Brom would call in the mortgages with 30 days’ notice if they were deemed to be unprofitable.
The Court of Appeal agreed that the building society was not entitled to call in the loans at such short notice.
Alexander said: “This ruling sends a clear message to other lenders who have acted in a similar manner, and to those who might have been considering following suit.
“There are thought to be in the region of one million tracker buy-to-let mortgages which could have been affected in this case had gone the wrong way.”
Responding to the ruling, the West Brom said it was “disappointed” but accepted the Court of Appeal’s decision.
Jonathan Westhoff, chief executive, said: “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.”