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.