Bank of Ireland has written to 1,200 borrowers threatened with an increase in their mortgage rate to advise them they will not face the change after all, following a review of customer complaints.

In February, the bank told 13,500 UK customers on tracker mortgages that it planned to increase the margin on their loans from 1 May, citing the rising cost of funding and need for banks to maintain greater levels of capital.

Buy-to-let customers saw typical pay rates rise from base rate plus 1.75% (2.25%) to base rate plus 4.49% (4.99%), while residential customers saw the first of two staged rises that would eventually move pay rates up from 1.39% above base rate (2.49%) to 3.99% above (4.49%).

For one borrower who spoke to the Guardian the change meant the monthly cost of his mortgage was set to more than treble, from £243 to around £780.

Bank of Ireland said the change, which affected both residential and buy-to-let customers, was permitted by a specific clause in these mortgage contracts. However, after reviewing complaints from customers it has reversed the decision to increase rates for two groups of customers, a move it said was "in line with the bank's commitment to treat all customers fairly".

Those who will get the reprieve include 1,000 flexible mortgage customers who were actively using the flexible facilities on their mortgage account and had received a specific letter that might have caused them to believe the rate differential they were paying was set for the term of their loan.

Around 200 people who switched to a tracker mortgage will also escape the increase. They received documentation detailing that the differential on their mortgage was variable, but the conditions they were sent did not detail the circumstances under which it could be changed.

The chief executive of Bank of Ireland UK, Des Crowley, said: "We have said from the outset that we will review all customer complaints individually and that we are committed to treating customers fairly throughout the process, it is on this basis that we have removed these customers."

Richard Lloyd, executive director of the consumer group Which?, said the announcement showed that Bank of Ireland had not properly reviewed who it could be applied to.

"Bank of Ireland should now re-examine the position of all customers affected by the rate rise – especially those who were sold a 'lifetime tracker' – and we hope the Financial Conduct Authority will monitor this," he said.

"Customers who feel they've been unfairly treated should continue to complain."

The Financial Services Authority, which was the bank's regulator when the change was announced, was criticised by MPs for letting the increase go ahead unchecked.