by Mark Johnston
Standard variable rate borrowers urged to rethink.
According to insurers Legal and General, an estimated 5.6 million households are currently sitting on a lenders standard variable rate (SVR).
Building societies and banks put customers on to their standard variable rates (SVR) when their original fixed or tracker deal comes to an end. Standard variable rates (SVR) are not fixed and historically have only tended to rise and fall in line with the Bank of England’s base rate.
Lenders can however raise their standard variable rate (SVR) at any time as they are not tied to the Bank of England’s base rate like tracker mortgage products are.
Bank and building societies raise money for mortgages in two ways:- from customers savings accounts, but there is fierce competition for savers money at the moment and therefore lenders are having to pay them better rates in order to encourage the custom- From the financial money markets. The crisis in the euro zone has pushed up the cost of borrowing money from the financial markets, especially as lenders become more nervous about lending to each other.
Although recently, despite the base rate still been at a record 0.5% for the 3rd year in a row, two of Britain’s largest banks have already announced a raise in their mortgage rates for at least a million home owners.
The Halifax is to increase its standard variable rate (SVR) from 3.5% to 3.99% from May 2012 and the Royal Bank of Scotland (RBS) has hiked rtes for its offset and one account customers from 3.75% to 4%.
However, the Halifax standard variable rate (SVR) is still reasonable at 3.99%; it is cheaper than Santander’s rate of 4.24% and Barclays rate of 4.99%.
David Hollingworth, director at mortgage broker London and Country, said “Halifax will have not made this move lightly and although I would not expect every lender to hike rates, you certainly can not rule out the possibility of some following suit”.
The Yorkshire bank and Clydesdale bank have become the latest lenders to announce increases in their standard variable rates, from 4.59% to 4.95% also from May 2012.
The Bank of Ireland has also announced increases in their standard variable rates (SVR), from 2.99% to 3.99% in June 2012 and a further rise in September 2012 from 3.99% to 4.49%.
With the fear that other lenders may follow suit, some mortgage experts are urging home owners to review their mortgage arrangements. In line with this many mortgage brokers have already received many more enquires than usual, as borrowers rush to check if they are or are likely to be affected by a rise in their lenders standard variable rate (SVR).
Experts have said however, that most borrowers can usually find a better deal than simply falling back on their lenders standard variable rate (SVR).
Ray Boulger, a mortgage expert at broker John Charcol, suggests that ‘borrowers should not panic just yet’ and adds “the London Interbank Offered Rate (LIBOR) has not only stopped, but been reversed, which suggests finding pressures have eased a little. Therefore, a general upward movement in standard variable rate (SVR) is unlikely until the base rate changes, which look
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