1.5m families hit by mortgage rate rises: Cost of borrowing has soared to a 42-month high

Families are being hit by the highest mortgage repayments in more than three years, according to figures released yesterday.
The standard variable rates that at least 1.5million families are on now average 4.27 per cent – a level not seen since March 2009.
Homeowners are automatically moved to SVRs at the end of their initial deal – such as a two-year fixed loan or a three-year tracker.
Tomorrow, Santander, the country’s second biggest mortgage lender, will increase its variable rate from 4.24 per cent to 4.74 per cent, hitting 400,000 customers.
The upward move comes despite the Bank of England having kept its base rate at an historic low of 0.5 per cent since March 2009.
A Santander customer with a £150,000, 25-year loan will be forced to find an extra £42 per month – £504 a year.
Many homeowners are trapped on an SVR because they do not have enough equity in their properties to secure a more competitive deal. The Bank of England figures published yesterday show the average variable rate has risen steadily this year.
In March 2009 it was 4.06 per cent but then fell as low as 3.82 per cent before returning to a 42-month high of 4.27 per cent.
Halifax, Yorkshire Bank, the Co-op and Bank of Ireland have all increased their rates in recent months.

 

David Hollingworth, from the mortgage adviser, London & Country, said: ‘No SVR is safe at the moment. There is every chance that there will be other banks and building societies which increase their rates in the next few weeks and months.
‘Lenders are still feeling the pressure. The SVR is something that they can easily change.’
It is not known exactly how many homeowners are on an SVR deal, but the number has increased sharply since the base rate was cut to 0.5 per cent.
A spokesman for the Council of Mortgage Lenders said it is wrong to assume that banks could borrow money to hand out in mortgages at the Bank of England’s base rate of 0.5 per cent.

Possible increase: There is a risk that other banks and building societies will follow Santander and increase the rates for mortgages

‘People tend to assume that the cost of funds to lenders equates to the base rate, but this is not the case,’ she insisted.
A Santander spokesman said the fact that its borrowing costs had been rising steadily was behind the decision to increase its SVR.
‘This move is prompted by several factors,’ he added. ‘Most notably, the fact that for the last three years the amount it costs us to provide mortgages and the rates we offer our savings customers have been increasing despite the base rate remaining static.
‘Indeed, for some time the correlation between base rate and mortgage and savings rates has been weakening.’
Homeowners will be forced to spend more than £300million extra on their monthly loan payments over the next year due to the higher rates, according to the consumer group Which?.