A Rise in Lenders Mortgage Rates

by Mark Johnston

The Bank of England has kept its key bank rate pinned down at 0.5% for nearly 3 years now; this was in a bid to keep borrowing cheap for both individuals and businesses alike.

Therefore it is the ‘fear factor’ in markets that drive up borrowing costs, despite the fact the UK base rate remains unmoved.

Concerns about the euro zone crisis hit in the second half of 2011 and this then made banks suspicious of one another, so the London Interbank Offered Rate (LIBOR) steadily rose.

However, the recent intervention by the European Central Bank to ‘dole out’ colossal cheap loans to banks across the continent appears to have stabilised the money markets and the London Interbank Offered Rate (LIBOR) has fallen marginally.

Despite this 2 of the UK’s largest lenders have increased their mortgage rates in the space of just one week.

Brokers and analysts say that banks usually wait for an increase in the Bank of England’s base rate before pushing up their rates.

However the Royal Bank of Scotland (RBS)-Natwest group is now pushing up their rates by 0.25% from 3.75% to 4%. This rise will add at least £300 a year to the cost of a £100,000 home loan.

The Halifax (a state backed bank) has also announced that it is raising its standard variable rate (SVR) to 3.99% in May 2012.

This announcement comes less than a week after the bank wrote to its customers to tell them they were raising the cap on their existing mortgage rate.

This particular rate rise also amounts to a significant ‘slap in the face’ for taxpayers as they have supported banks such as the Halifax through the banking crisis of 2008 and are now suffering cuts, austerity and job losses.

John Mann, a senior Labour MP on the treasury select committee has described the rate rise as an “outrage considering the money the Halifax took when it was bailed out by the taxpayer”.

Santander is another bank to announce that it is to join the Natwest and Halifax in raising interest rates on their mortgages. Although unlike the other banks Santander’s changes apply to new rather than existing products and the increases are much smaller.

These higher rates have come just days after Britain’s big 5 banks; HSBC, Santander, Barclays, Lloyds TSB and the Royal Bank of Scotland (RBS) finished revealing their financial results for last year.

Overall the 5 made profits of £10.7 billion from their high street banking operations.

The banks involved have claimed that the prices they are being charged to borrow money on the wholesale markets have risen in the past year and they have no choice but to now pass the increase on to the customers.

These increases could not have come at a worse time for hard pressed families, who are already struggling to make ends meet.

Marc Gander, campaigner of the consumer action group, said “if consumers think that the banks are suffering alongside them in this economic crisis, they really do not understand what is going on”.

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