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Million borrowers face jump in mortgage repayments

John Fitzsimons
by Lovemoney Staff John Fitzsimons on 04 May 2012  |  Comments 10 comments

A number of increases to lenders' standard variable rates came into effect this week, leaving a million borrowers facing higher bills.

More than a million homeowners are facing up to increased mortgage bills this week, with a number of lenders increasing their standard variable rates. These increases mean that the typical borrower will face paying an extra £200 for their mortgage a year.

Standard variable rates (SVRs) are the revert-to rates borrowers move on to at the end of a fixed or tracker period. So if you take out a two-year fixed or tracker mortgage, 24 months down the line, you will move onto the lender’s SVR.

And that transition can lead to a payment shock.

The SVR changes

Each lender has a different standard variable rate. Halifax is increasing its rate from 3.5% to 3.99%. The Co-operative Bank is increasing its rate by 0.5% from 4.24% to 4.74%, while Clydesdale and Yorkshire Banks are moving their rates up from 4.59% to 4.95%.

The Bank of Ireland is also increasing its SVR, though this will happen in stages, by 1% in June and then a further 0.5% in September.

According to James Daley, editor of Which? Money, these rises will lead to an extra £300 million in interest payments for affected borrowers.

"We really think the lenders are not playing fair with their customers here. For many people, after the house price falls over the last few years, it will be very difficult to take their business elsewhere," he said.

"There are going to be hundreds of thousands of borrowers who have no option but to take these rises on the chin."

The insecurity of SVRs

The trouble with standard variable rates is that they are not actually linked to bank base rate. It’s completely up to the lender to set the rate, and decide when to increase it. So even though bank base rate hasn’t moved in more than three years, that doesn’t mean your mortgage rate is safe if you’re on a standard variable rate.

So why are lenders increasing their SVRs now?

Ben Thompson, MD of the Legal & General Mortgage Club, points to the issues within the funding market, as well as requirements for lenders to store more capital.

"Fundamentally more costs are being forced onto the banks, which the banks need to pass onto the customer," he concluded.

What should borrowers do now?

Affected borrowers have a number of options. If you are going to struggle with your bills, talking to your lender is a sensible first step. It's also worth looking around to see if you can find a cheaper deal to remortgage to.

Only time will tell if this is the start of a trend. But what is clear is that borrowers currently enjoying record low rates need to start considering their options. Just because the Bank of England are sitting on their hands regarding rate rises, that doesn’t mean your bank is too.

More on mortgages:

Why long-term fixed rate mortgages are getting cheaper

Why the NewBuy scheme isn't working

Halifax to pay half of borrowers' Stamp Duty bills

The top eight variable mortgages

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Comments (10)

  • JOHN MAXWELL
    Love rating 56
    JOHN MAXWELL said

    i cannot understand how this works, i lived in South Africa for many years where the Reserve Bank set an interest base rate. when you take a bond(mortgage) on a property you negotiate with the lender a rate relative to the base rate depending on your credit worthiness, when the base rate changes your bond rate changes in line. it seems so simple and easy to understand. what is different in this country?

    Report on 05 May 2012  |  Love thisLove  0 loves
  • MikeB55
    Love rating 6
    MikeB55 said

    The Greedy selfish banks and BSs want to make lots of money to pay the CEOs high bonuses. Shareholders get the blame - but there have been little or no dividends paid since 2008. Savers get miserable interest rates.

    I sympathise with young people who are trapped into lousy expensive mortgages and have negagtive equity. But I find it hard to sympathise with older people who have constantly remortgaged when house prices went up.

    Report on 05 May 2012  |  Love thisLove  0 loves
  • Aquasponge
    Love rating 38
    Aquasponge said

    the fire alarms are ringing and the escape doors are locked. How could you have been so stupid! The "free lunch" turned out to be bait and now the fisherman slowly starts to pull in his net.

    Report on 05 May 2012  |  Love thisLove  0 loves
  • ccfc22
    Love rating 0
    ccfc22 said

    Mr Cameron the economy is dead you want people to spend so you keep interest rates low, the banks decide to screw us some more and what do you do!!!!!! Nothing!!!!

    Report on 05 May 2012  |  Love thisLove  0 loves
  • bengilda
    Love rating 77
    bengilda said

    If one is mature and responsible enough to take out a mortgage and take advantage of a time limited low fixed interest rate, then that person is expected to understand that the interest rate will almost certainly rise at the end of that time.

    The borrower should always cater for interest at the SVR and be happy to take the lower interest period as a bonus and the opportunity to "save a bit" on repayments.

    If repayments at todays comparatively low SVR are too expensive then just imagine what will happen if Ed Balls was Chancellor and interest rates got to over 15% - as happened to so many of us older borrowers some years ago.

    If you couldn't afford it you shouldn't have borrowed it but the rise can be managed by cancelling the monthly smart phone contract and going from Sky TV to Freesat TV.

    Report on 05 May 2012  |  Love thisLove  0 loves
  • Aquasponge
    Love rating 38
    Aquasponge said

    The FSA estimate that c.8% of ALL house loans are only avoiding closure because of forbearance; this article is pointing out this is slowly coming to an end.

    During the boom over 40% of all house loans taken were interest only. 5 years on these borrowers are no nearer paying off this debt. This type of debt is drying up.

    Banks are hoping these people move this business elsewhere - become someone elses problem. Who blinks first, it's going to get messy.

    Report on 05 May 2012  |  Love thisLove  0 loves
  • The Bank Manager
    Love rating 72
    The Bank Manager said

    It's difficult for me to explain to customers of mine why rates are starting to increase, but what I try to outline is that they can revise their rate by switching to a new deal that would be cheaper. However, the SVR rates are at times, better than some 'capped', 'fixed' or 'tracker' deals.

    The thing is, did these customers make the best use of the low interest rates and maintain previous repayments when SVR was at say 5%, 6% or a higher percentage, or did they let the lower rate monthly repayment leave them with additional funds to spend?

    If they used the difference to repay higher interest rate debts (cards or possibly alternate/sub-prime lender debts), then that was the appropriate action to take and it is unfortunate where they now need to pay more. But should they have ensured they maintained their mortgage up-to-date, then they should vote with their feet and go elsewhere. Let your Bank or Building Society know you're not happy with their stance and take your business elsewhere.

    Of course, if some customers have continued to borrow against their mortgage for whatever reasons, then they have to accept the inevitable, that rates will have had to rise at some point in the future.

    If not, then perhaps they've buried their heads in the sand, as this has been reported in the media many-a-time over the past 3+ years that Base Rate has been at 0.5%. Surely they had time to adjust their finances and take into account what would happen in the future - or did they just spend without consideration?

    On another point MikeB55, I'm the first to admit the Banks aren't perfect...I've worked for mine nearly two thirds of my life, but looking back at your blogs, you seem to suggest that the Banks are the central cause of all problems and I am unable to agree with you.

    Yes, the Banks have played a big part within the financial crisis from which we are now hopefully soon easing our way out, but as I've said many a time, 'stop tarring all staff with the same brush'.

    Many other businesses provide staff with incentives and their senior management with bonuses, but as they are not noted so heavily in the media, you (and a number of others!) don't seem to have a pop at them.

    Do you believe that every single member of Bank staff is evil and out to do financial harm to their customers? From your comments, you don't seem to differentiate between those that are trying their best at Customer Service and those who get fat-cat pay-outs (believe me, these two are different) and I’m none too chuffed with the latter either - see, we agree on something.

    Try and be more equitable and give a balanced view. I do.

    Report on 06 May 2012  |  Love thisLove  1 love
  • Skintsod
    Love rating 32
    Skintsod said

    Greedy, foolish and uncaring. I'm talking about the banks, right?

    No, I'm talking about the people who were greedy to think that buying a home they couldn't normally afford was a way enrich themselves, foolish to believe that house prices would only go one way and uncaring to imagine that problems down the line would be something which could be dealt with manana.

    People complain about their bank or BS but nobody held a gun to their head to take out the loan. I remember on several occasions being recommended to change to an endowment mortgage, which I rejected, and I can guarantee that there wasn't a gun in sight. I don't complain about the bank offering me the option because I'm an adult and quite capable of making and standing by my own decisions.

    This country is stuffed with people who believe they are entitled to a high standard of living and if they can't afford it then somebody else should pay for it - be it the banks (because they're all criminals - banksters), the taxpayer (because welfare, including child benefit, is a useful part of their lifestyle) or just their good old Uncle Joe who clearly doesn't need all his pension money and can afford to "help out".

    Too many people complain about the affordability of their mortgage from the comfort of their leather sofa in front of their Sky TV with a cigarette in one hand and a glass of scotch in the other. And this stuff gets sucked up by the media. I recall seeing a TV program a few weeks ago in which the featured person whined bitterly to the camera about not being able to afford enough to eat, but did so whilst holding a cigarette.

    I have little sympathy for those who thought the good life would go on for ever, mysteriously funded by some financial gobbledegook methods which they didn't care to understand because it might have put them off. Chickens do come home to roost, and that's all we're seeing now. There isn't a criminal class of bankers looking to do them in - they did themselves in.

    Report on 06 May 2012  |  Love thisLove  1 love
  • Aquasponge
    Love rating 38
    Aquasponge said

    Many European banks are bust. Is bailing them out the right thing to do? The French and Greek election results throw an interesting dimension into the mix. The next 12 months will be tricky and expect UK rates to head North.

    Report on 07 May 2012  |  Love thisLove  0 loves
  • Aquasponge
    Love rating 38
    Aquasponge said

    Iran is now pricing oil for China in renminbi (Chinese currency Yuan). The world is rejecting USD and GBP. There are only two outcomes to this:

    1). Large interest rate hikes in the West

    2). A strike on Iran

    Both have very serious outcomes and rates rise very quickly from both

    Report on 08 May 2012  |  Love thisLove  0 loves

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