Halifax increases cap on its standard variable rate

The bank is increasing the maximum it can charge borrowers on its standard variable rate to 3.75%, which could mean higher mortgage repayments for up to a million people.

Halifax has announced that it is increasing the cap it will charge mortgage customers on its standard variable rate (SVR) by 0.75%.

This means that it can potentially charge the 40,000 customers who have at least part of their mortgage on the capped standard variable rate more from 31st March. The cap for these customers is currently set at 3% plus Bank of England base rate, so is 3.5% at the moment. The new cap will be 3.75% plus base rate. So if it raises the SVR to the capped limit, the new SVR will be 4.25%.

However, Ray Boulger of independent mortgage adviser John Charcol estimates that as many as one million Halifax mortgage customers could be affected if it raises the SVR cap. This is because if it increases its SVR cap to 3.75% plus base rate, borrowers currently paying its capped SVR of 3.5% will also pay the higher rate.

Legally, the bank has to give one month’s notice of its intention to raise the cap but it has already begun writing to its mortgage customers. It is also obliged to offer customers a three-month window free of early repayment charges for customers to pay up or switch their mortgage elsewhere.

Millions of mortgage borrowers have let their mortgage move on to their lender’s SVR, also known as the ‘revert to’ rate, at the end of a fixed rate or discount period. Some people have done this because SVRs have been lower than other rates on offer, particularly if they were set in line with the Bank of England base rate. Other people have just not switched to another mortgage when their fixed or discount term expired.

Some lenders increased their SVRs for new customers and customers transferring to other mortgages during 2009 and 2010.

Boulger says he doesn’t expect other lenders to follow Halifax’s lead until the base rate starts to move upwards. Many SVRs are already well above best buy fixed-rate mortgage rates.

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