Borrowers hit as lenders leapfrog latest base rate rises

Millions of homeowners with variable rate mortgages are being hit with excessive increases to their monthly repayments, as many of the UK’s largest lenders have raised interest rates more than the recent base rate rises.

Brokers say the difference between some lenders’ standard variable rates and the Bank of England’s base rate has widened to record levels.

Borrowers have suffered three quarter-point interest rate rises since August as the Bank has acted to curb house price growth and rising inflation.

But many lenders have put additional strain on mortgage holders by increasing their standard variable rates even further.

Melanie Bien, associate director at Savills Private Finance, said: “Many lenders have taken the opportunity to increase their profit margins in the past six months by raising their standard variable rates by considerably more than the base rate.

“This puts extra pressure on borrowers at a time when many of them are already overstretched. Borrowers do not know where they stand so cannot budget accordingly.”

According to data compiled by Savills from 38 lenders, almost half of them have increased their variable rate by more than the 0.75 percentage point base rate rise.

Nationwide, Abbey, Alliance & Leicester, The Royal Bank of Scotland, NatWest and Woolwich have all raised their SVRs by 0.8 or 0.85 percentage points. Many smaller and specialist lenders, including The Mortgage Business, Britannia, The Co-operative Bank, First Active, Kent Reliance and West Bromwich have also passed on greater rate rises.

Savills calculates that a 0.85 percentage point rise on a £150,000 interest-only mortgage would cost an extra £106.25 per month.

The Council of Mortgage Lenders estimates that around 20 per cent of the UK’s 11.7m mortgage holders are still paying over the odds with standard variable rates.

Brokers say anyone on these rates should switch immediately.

The move by lenders to increase rates in excess of the base rate was most evident after August’s rate rise – the first for two years. But a number of lenders have already inched up their rates by more than a quarter point this month. Peter Gladdy at My Mortgage Direct believes these lenders are pre-empting another rate rise.

Ray Boulger at John Charcol, the mortgage broker, said: “More and more lenders are trying to push their margins out. The difference between the typical standard variable rate and the base rate used to be about 2 percentage points but many lenders are now going beyond this.”

According to Moneyfacts.co.uk, the comparison website, since July 2003 SVRs have on average been 1.92 percentage points above the base rate. Many standard variable rates are now up to 2.25 percentage points above the current base rate of 5.25 per cent.

If you want to stick with a variable rate, brokers say the only way you can be sure that exact base rate rises – and cuts – will be passed on is to opt for a tracker.

James Cotton at London & Country Mortgages says: “Any borrower on a discount variable rate should be aware that they are fully at the mercy of their lender. The trend of passing on higher increases highlights the benefits of trackers.”

Most brokers are recommending that first-time buyers go for fixed-rate deals, even though these have also been getting more expensive since the end of last year. Mr Gladdy says that 97 per cent of his clients now have fixed-rate mortgages, compared with around 80 per cent six months ago. Many fixed-rate providers already seem to be factoring in another rate rise. The best fixed-rates are now around 5.2-5.5 per cent, compared with below 5 per cent just before Christmas.