Skipton Building Society hikes its mortgage SVR by over 1 percentage point, affecting thousands.

When you're a mortgage customer sticking to your building society's Standard Variable Rate, you expect the rate to move only in line with the Bank of England Base Rate — as it has done for years.

You don't expect it to suddenly lurch upwards when the Bank of England's rate has been static for months.

You especially don't expect the rate lurch when your mortgage lender offered a guarantee that its SVR would never be more than three points over base.

That's why it's odd, unprecendented and downright frustrating that Skipton Building Society has chosen this month to invoke 'exceptional circumstances' and impose a huge rate increase that will affect over 60,000 mortgage customers.

Skipton Building Society's SVR is rising by 1.45%, to 4.95% on 1st March 2010.

The decision is being communicated to thousands of mortgage holders by post. By any measure, 1.45% is a huge sudden increase. Some will face monthly repayment increases of £400 or more.

Imagine having to find £400 extra a month at the stroke of a pen. Even the average mortgage borrower is in line for a £100 increase in interest.

It's a 'realignment' for the benefit of all members, we learn…

…and it's no wonder that Skipton Building Society's website is promoting its Fixed Rate ISA at the moment. Meanwhile tucked away on its mortgage pages are some FAQ (distilled here):

• Why now? — they have defined 'exceptional circumstances' to include phases such as these where the base rate is low (Goes to show: a 'guarantee' is not necessarily a guarantee… have you read all the clauses?)

• Why at all? — to protect savers. Actually, the phrase used is "to enable us to continue balancing the needs of our borrowers and our savers for the long term".

• Why so much at once? — Good question. It seems all those months of restraint had built up into a bubble of frustration.  After all, as Skipton repeatedly points out, its SVR is still below average for the sector.

The thing is, although 4.95% for an SVR is by no means bad, I'd love to have been a fly on the wall when they took the decision, presumably overriding any concerns about how individual mortgage customers (who, let's face it, may be fairly stuck in the current LTV climate) would cope with such a dramatic increase.

This is a story we surely haven't heard the last of. 

A look at the good and bad guys when it's time to revert to your lender's standard rate.

Following yesterday's post on Standard Variable Rate (SVR) increases, we thought we'd round up the current highest and lowest revert-to rates we're aware of.

The range between the best and worst in the market is quite staggering — but then, these are (still) exceptional times. 

Best & Lowest Mortgage SVRs:

The following data is correct at time of publishing:

As you can see, some lenders followed the Bank Of England's movements and are still at 2% (a 'normal' kind of margin) above the base rate.  Their customers will be pleased to just sit tight at reversion time!

Worst & Highest Mortgage SVRs:

Meanwhile though, other lenders have acted as if nothing has happened in 12 months:

For an argument on why building societies are putting up SVRs, see yesterday's post. However, if you have one of these lenders' mortgages, you're not going to see the funny side of a standard variable rate nearly twelve times base rate.  Re-mortgage options might be a bit limited at the moment, but there's no harm in getting some advice!

Can you believe that some lenders are increasing their Standard Variable Rates at a time of static low bank rates?

Despite the Bank of England Base Rate (BoEBR) staying put at an all-time low of 0.5%, some lenders have increased their standard mortgage interest rates by as much as 1.49%.

Nationwide's change is the most remarkable, introducing a new 3.99% SVR for mortgages completed after 30th April 2009. Previously completed mortgages are still eligible for the bank's former SVR of 2.5%.  That's a big difference.

Accord Mortgages has increased its SVR by 0.65% to join a host of other lenders on 5.99%. The other lenders making recent increases have all been building societies: Cambridge BS (up by 0.59%), Ipswich BS (0.5%), Marsden BS (0.46%), Mansfield BS (0.35%), Scottish BS (0.25%) and Skipton Building Society (a bit more complicated).

How do you explain a move like this?

Increasing SVRs now, despite static base rates, could be a sign of lenders' frustration: a deliberate attempt to unsettle existing mortgage borrowers and prod them towards new deals.

The problem for lenders is inertia. 2009's drastic base rate cuts have resulted in lower SVRs, which in turn mean people don't want to re-mortgage. Existing borrowers find that when they come to the end of promotional interest rates (fixed, discount variable and so forth), the Standard Variable Rate they revert to is low enough for comfort. For mortgage holders with low equity, there's little incentive to apply for new deals as the likelihood of getting a better rate elsewhere may be non-existent.

Why does this inertia trouble lenders? After all, isn't their first priority to keep a customer base that steadily repays its loans and doesn't default on its debts?

The answer is surely the reliance of many lenders on mortgage fee income — they depend on people changing deals in order to charge profitable £999 arrangement fees per remortgage.

Another possible, less sinsister reason for the increases is to allow these building societies to attract funds from savers by raising their savings rates.  It's a competitive savings market, and shoring up the deposit base seems to be what matters.

Does this affect you if you're not with one of the societies mentioned? Not yet, although the concern is that this will now spark an across-the-board series of SVR rises. Borrowers whose monthly mortgage repayment amounts have been mercifully subdued by, for example, Lloyds TSB's 2.5% Standard Variable Rate, might find the big banks are tempted to follow suit, leading to higher monthly repayments for a lot more mortgage customers.