by Mark Johnston
The UK’s biggest mortgage lender has announced changes to its mortgage range that will result in large price hikes for first time buyers. The Halifax announced that from January 2011 it will raise its mortgage rates for new borrowers which will probably effect struggling first time buyers the most.
The Halifax was badly hit by the financial crisis and was bought by the Lloyds banking group in a bid to save it. The UK Government has over 40% stake in the business which had to be rescued because of its over exposure of bad debt due to defaulting mortgages.
They have been criticized for also dropping their promise of their variable rate never being over 3% of base rate which will force borrowers into new deals, many of which with will switch to new lenders.
Industry insiders are warning that the changes will be bad news for first time buyers as the bank will be able to charge what it likes for its mortgages. It comes as a shock for many especially when those effected, the tax payer saved them from collapse with a massive bailout.
Experts are now wondering whether this change will lead the way for other banks and building societies to make rate increases. Either way, any interest rate changes of this kind will have a negative effect on struggling home owners who are already finding things difficult due to government cuts and the economic downturn.
Currently borrowers with Halifax are charged 3.5% at the end of their mortgage term when their home loans are converted to Halifax’s standard variable rate. From the start of January 2011 the Halifax will charge all new customers 3.99%, a rise of almost 0.5%. With no maximum cap of the standard variable rate, the bank is will be clear to set the rate as high as it likes.
Home owners who have a average £150,000 mortgage will have to find an extra £480 per year or around £40 a month which could be crippling to already struggling home owners.
The director of the independent mortgage broker Private Finance, Melanie Bien, said: “Halifax says it is doing this because of higher funding costs but lenders are already making significant margins. Borrowers will not think it fair that a taxpayer-funded bank is raising its standard variable rate for new customers when rates have not gone up.”
A spokesperson for a leading financial comparison website called the change “disappointing” but it may be something that we start to see in the wider market as Nationwide and Cheltenham & Gloucester have already made the change.
Stephen Noakes, director of mortgages at Lloyds Banking Group, said “the bank had no choice but to make changes for new customers because of ‘higher funding costs. It will not affect any borrowers until 2013 at the earliest because Halifax does not offer any mortgage deals which last for less than two years”.
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