Million borrowers face jump in mortgage repayments
A number of increases to lenders' standard variable rates came into effect this week, leaving a million borrowers facing higher bills.
More than a million homeowners are facing up to increased mortgage bills this week, with a number of lenders increasing their standard variable rates. These increases mean that the typical borrower will face paying an extra £200 for their mortgage a year.
Standard variable rates (SVRs) are the revert-to rates borrowers move on to at the end of a fixed or tracker period. So if you take out a two-year fixed or tracker mortgage, 24 months down the line, you will move onto the lender’s SVR.
And that transition can lead to a payment shock.
The SVR changes
Each lender has a different standard variable rate. Halifax is increasing its rate from 3.5% to 3.99%. The Co-operative Bank is increasing its rate by 0.5% from 4.24% to 4.74%, while Clydesdale and Yorkshire Banks are moving their rates up from 4.59% to 4.95%.
The Bank of Ireland is also increasing its SVR, though this will happen in stages, by 1% in June and then a further 0.5% in September.
According to James Daley, editor of Which? Money, these rises will lead to an extra £300 million in interest payments for affected borrowers.
"We really think the lenders are not playing fair with their customers here. For many people, after the house price falls over the last few years, it will be very difficult to take their business elsewhere," he said.
"There are going to be hundreds of thousands of borrowers who have no option but to take these rises on the chin."
The insecurity of SVRs
The trouble with standard variable rates is that they are not actually linked to bank base rate. It’s completely up to the lender to set the rate, and decide when to increase it. So even though bank base rate hasn’t moved in more than three years, that doesn’t mean your mortgage rate is safe if you’re on a standard variable rate.
So why are lenders increasing their SVRs now?
Ben Thompson, MD of the Legal & General Mortgage Club, points to the issues within the funding market, as well as requirements for lenders to store more capital.
"Fundamentally more costs are being forced onto the banks, which the banks need to pass onto the customer," he concluded.
What should borrowers do now?
Affected borrowers have a number of options. If you are going to struggle with your bills, talking to your lender is a sensible first step. It's also worth looking around to see if you can find a cheaper deal to remortgage to.
Only time will tell if this is the start of a trend. But what is clear is that borrowers currently enjoying record low rates need to start considering their options. Just because the Bank of England are sitting on their hands regarding rate rises, that doesn’t mean your bank is too.
More on mortgages:
Why long-term fixed rate mortgages are getting cheaper
Why the NewBuy scheme isn't working
Halifax to pay half of borrowers' Stamp Duty bills
The top eight variable mortgages
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Iran is now pricing oil for China in renminbi (Chinese currency Yuan). The world is rejecting USD and GBP. There are only two outcomes to this: 1). Large interest rate hikes in the West 2). A strike on Iran Both have very serious outcomes and rates rise very quickly from both
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Many European banks are bust. Is bailing them out the right thing to do? The French and Greek election results throw an interesting dimension into the mix. The next 12 months will be tricky and expect UK rates to head North.
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Greedy, foolish and uncaring. I'm talking about the banks, right? No, I'm talking about the people who were greedy to think that buying a home they couldn't normally afford was a way enrich themselves, foolish to believe that house prices would only go one way and uncaring to imagine that problems down the line would be something which could be dealt with manana. People complain about their bank or BS but nobody held a gun to their head to take out the loan. I remember on several occasions being recommended to change to an endowment mortgage, which I rejected, and I can guarantee that there wasn't a gun in sight. I don't complain about the bank offering me the option because I'm an adult and quite capable of making and standing by my own decisions. This country is stuffed with people who believe they are entitled to a high standard of living and if they can't afford it then somebody else should pay for it - be it the banks (because they're all criminals - banksters), the taxpayer (because welfare, including child benefit, is a useful part of their lifestyle) or just their good old Uncle Joe who clearly doesn't need all his pension money and can afford to "help out". Too many people complain about the affordability of their mortgage from the comfort of their leather sofa in front of their Sky TV with a cigarette in one hand and a glass of scotch in the other. And this stuff gets sucked up by the media. I recall seeing a TV program a few weeks ago in which the featured person whined bitterly to the camera about not being able to afford enough to eat, but did so whilst holding a cigarette. I have little sympathy for those who thought the good life would go on for ever, mysteriously funded by some financial gobbledegook methods which they didn't care to understand because it might have put them off. Chickens do come home to roost, and that's all we're seeing now. There isn't a criminal class of bankers looking to do them in - they did themselves in.
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08 May 2012