June 20 2013 Latest news:
Adam Aiken, Editor
Monday, March 5, 2012
There have been ominous signs for mortgage borrowers recently, with some of the biggest names on the high street putting up the cost of home loans.
Halifax recently became second major lender within the space of a couple of days to put up its standard variable rate (SVR), with 850,000 of its customers set to be hit by higher monthly repayments.
The move will see Halifax’s SVR rise from 3.5pc to 3.99pc on May 1. That means a borrower with an outstanding loan of £100,000 will see annual repayments going up by nearly £300 a year, or by £24.30 a month.
Many borrowers will see smaller increases than this – after all, the average balance for Halifax customers on its SVR is £67,500 – but it is likely that some people will be strongly impacted.
The Halifax move came hot on the heels of a similar announcement from Royal Bank of Scotland/Natwest, which increased the rates of its offset mortgage and its One Account product by 0.25pc, taking them to 4pc. That decision will affect a further 200,000 people.
What many customers find particularly galling is that not only has the Bank of England left the base rate unchanged at its historic low of 0.5pc, but the two players making these SVR changes are the two state-owned banks.
Halifax – part of Lloyds Banking Group – and RBS were the banking sector’s two biggest basket cases ahead of their bailouts in 2008, and the taxpayer still owns majority stakes in both of them.
That should not prevent them from making commercial decisions, but their decisions face greater public scrutiny.
As Marc Gander, of the Consumer Action Group, said: “It’s shocking. It’s coming at a time when people need this thing least of all. This is a nice thank you gesture to all the lovely people who bailed them out.”
Once the fuss has died down, however, there’s the small matter for customers of deciding what to do.
Record numbers of borrowers are on SVRs. Previously, most people who completed their fixed-rate deals were encouraged to look for new deals rather than revert to their lenders’ SVRs, because SVRs have usually been higher than fixed-rate products.
But SVRs plummeted along with the base rate three years ago, and a lot of people have subsequently opted to remain on SVRs rather than looking for new fixed-rate deals. That’s why so many people are now affected when a major lender hikes its SVR.
The banks claim they are having their hands forced by the money markets, and that the higher rates they are introducing are simply reflecting the increased costs they themselves being charged.
But that means the pressure felt by the likes of Halifax and RBS is likely to affect other lenders, too, so don’t be surprised if other mortgage providers write to their customers soon, informing them of rate rises.
The bottom line is that mortgages rates remain historically low, but they can go only one way from here.
So while a sudden massive increase in the cost of home loans is unlikely, it may be time for people with SVRs to start weighing up the options and think about whether we’re nearing the time to fix once more.