by Peter Jacobs
Traditionally when mortgage deals come to an end the customer is placed onto the lender’s standard variable rate (SVR) but some mortgage companies are introducing a new SVR of their own to stop people having lower mortgage interest rates and Lloyds TSB is the latest.No one could have forecast just a few years ago that the UK base rate set by the Bank of England would go as low as 0.5% and for so long. Previously the US and Japan have these low rates and it caught many mortgage lenders by surprise with Lloyds TSB and Cheltenham and Gloucester Building Society as well.
Currently they have the lowest SVR in the market for people whose mortgage deals have come to and end and this is now just 2.5%. Before the turmoil Lloyds and Cheltenham and Gloucester said that their standard variable rate would be no higher than 2% above base rate and since the 0.5% rate has been in force almost all of their customers have been paying just 2.5% on their loans for the past couple of years.
But this will all end from 1st June 2010 for new customers taking out new mortgage products as the introduction of a new “homeowner” variable rate comes into force which currently stands at 3.99% (base rate plus 3.49%) – this hike would mean an additional £80 in interest per month on a basic £100,000 mortgage or £160 per month on a £200,000 mortgage product.
The move is likely to produce more changes in the mortgage market where lenders attempt to protect their margins whilst the cost of borrowing is so low. Last year the Nationwide Building Society introduced a similar move where new mortgage customers would be placed on their standard mortgage rate at 3.49% rather than their base mortgage rate of 2.99%
As many people simply stay on SVR rates because they are so low and credit scoring being much tighter the mortgage lending market is also tight with many people just not moving home or re-mortgaging at all. Previously most people would be changing their mortgage every 2 or 3 years to get the next best discounted deal but with the interest rates so low and the application fees now much higher less and less people are going for a remortgage.
Lloyds TSB said the new homeowner variable rates was below some of their competitors but is actually higher than the 3.5% charged by the Halifax which is also part of the same group of companies. As all new mortgage deals from Lloyds and C&G are for at least 2 years no one would be placed onto the new rate until June 2012 at the earliest — although they won’t get the benefits of the real low interest rates that the UK is currently experiencing the longer term trend may be upwards.
In other news Lloyds has also stopped lending interest only mortgages for loans above £500,000 and added 0.2% onto their interest rates for anyone taking out an interest only mortgage loan although their maximum loan to value (LTV) percentage at 85% is one of the highest in the industry from the major lenders.
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