by Mark Johnston
Standard variable rates (SVR) are the name given to mortgage lenders benchmark cost of borrowing. This is typically the rate borrower’s move on to once their initial fixed or tracker rate deal has ended.
Crucially, lenders can raise or lower standard variable rates (SVR) as they like, independent of changes to the Bank of England’s base rate.
So the Bank of England continues to hold the base rate at its historically low level because they obviously realise the ramifications of raising the cost of mortgages but now several lenders decided to increase the interest rates on their standard variable rate (SVR) deals. These increases will take effect from the 1st of May.
The most recent lender to announce this was the Co-operative bank, following similar moves by the Halifax, the Bank of Ireland, the Clydesdale and Yorkshire bank, all of whom cited the rising cost of financing these loans by borrowing in the wholesale markets as their reason.
This squeeze is basically about 2 things: firstly lenders are trying to shore up defences against the ongoing euro zone crisis and its fallout, secondly this is all part of the process of rebuilding their finances after the credit crunch driven financial crisis.
Unfortunately both of these things will continue for years to come and in the end it will once again be the borrowers who foot the bill for repairing the damage done by banks and building societies own mis-management during the ‘easy credit years’.
According to new research from Which? Over a million consumers will face a £300 million hike in mortgage repayments over the next year.
The rise in payments will add an extra drag on to consumer’s finances and confidence at the same time as Britain has found itself dragged in to recession again.
James Moss, managing director of Curzon Investment Property, said “this is a kick in the groin for home owners especially at a time of rising energy prices and food bills, this will hit people hard”.
Which?, the consumer group have blamed the standard variable rate (SVR) rises on a ‘lack of competition in the mortgage market’ and also the failure of the government to take action to promote competition.
However the Financial Service Authority (FSA) has said it has seen ‘little evidence of this so far’.
Some experts believe that market pressures will keep rates in check as lenders who raise their rate too aggressively risk losing their most creditworthy customers.
As a double whammy to home owners, banks and building societies have also begun to raise their rates on the deals that those on standard variable rates (SVR) could re-mortgage to ahead of the introduction of stricter mortgage rules from next year.
In conclusion the big question for borrowers sat on standard variable rates (SVR) is which lender is next? The short answer is that it could be almost any bank or building society.
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