Co-operative Bank has increased its standard variable rate by 0.5%.
The Co-operative Bank has ramped up its standard variable rate (SVR) by 0.5%, from 4.24% to 4.74%, blaming an increased cost of financing mortgages.
The move is bad news for the 54,000 borrowers currently on the lender’s SVR, the rate you move to after your initial fixed or tracker rate has come to an end. The rise comes despite the Bank of England's base rate remaining at its record low of 0.5%, and little sign of that changing any time soon.
For a borrower on a 25-year, £150,000 repayment mortgage, monthly repayments will jump from £821 to £864, an increase of £43. Interest-only borrowers will feel the pinch even more, with a rise of £63 from repayments of £530 a month to £593.
Cashing in on standard variable rates
Things had gone a little quiet on the SVR front, after Halifax, Bank of Ireland and Yorkshire and Clydesdale Banks all increased their SVRs in late February/early March. There are now suggestions that this will be the start of another round of SVR rises among the nation’s lenders.
Traditionally, it was considered a bad idea to sit on your SVR for too long. You’d come to the end of a juicy two-year fixed rate, and see your interest rate jump as you transitioned onto the SVR. To avoid this, you’d remortgage to a new deal and start all over again.
However, as the base rate collapsed a couple of years ago, so did SVRs. As a result, when borrowers came to the end of their initial fixed or tracker rate, rather than face a payment shock, many instead moved onto an even more competitive rate in the form of their SVR. Understandably, those borrowers were in no rush to remortgage away to a higher rate elsewhere.
The danger of standard variable rates
The Co-op's move may remind borrowers of just how little security they have when sitting on an SVR. SVRs are not directly linked to the base rate – that’s why lenders can increase them, irrespective of what’s happening with the base rate.
So while the rate on your SVR looks nice and low at the moment, that situation can very swiftly change. And by the time you realise that you do need to move to the safety of a fixed rate, chances are the rates on offer won’t be anything like as attractive as they are at the moment.
Finding a better deal
We wrote last week about the exciting range of fixed rate mortgages on the market currently in Fix your mortgage for three years below 3%. You can search for yourself to see which deals you qualify for using the lovemoney.com mortgage tool over at our mortgage centre.
However, my preferred option is always to go a mortgage broker, preferably one that doesn’t charge a fee. Brokers offer a couple of key advantages. Firstly, they have access to some deals that you can’t get hold of direct.
But more important than that, they are armed with specialist knowledge that the lay person just doesn’t have access to. They know if Lender A is likely to pull that mortgage you’ve got your eye on, so knows how quickly you’ll need to act to get hold of it. They also have experience of each lender’s criteria, so know exactly which lender is most likely to want to lend to you, and which won’t be so keen. This knowledge can save you an awful lot of time and money. I wouldn’t dream of taking out a mortgage without at least speaking to a broker first.
We have our own team of fee-free mortgage brokers, and you can pick their brains by email, over the phone or even via instant messenger. Just head over to the mortgage centre.
More on mortgages:
Interest-only borrowers left with nowhere to go
Fix your mortgage for three years below 3%
Why a mortgage broker will always find you the best mortgage
The towns where taking in a lodger could make you mortgage free
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At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.