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.
[SPOTLIGHT]"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.
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