Skipton Building Society, the UK’s fourth-biggest mutual, has backtracked on its promise to existing mortgage borrowers by announcing it will increase its standard variable rate (SVR) from 3.5 per cent to 4.95 per cent.
Existing Skipton customers were guaranteed they would never have to pay more than 3 per cent over the Bank rate, currently at 0.5 per cent, on the lender’s SVR. But the lender, which has around 100,000 borrowers, said it was temporarily removing the ceiling from 1 March due to the high cost of retail funding.
The move is the biggest increase by any lender so far and mortgage brokers have warned more building societies could follow.
The increase will mean a typical Skipton mortgage holder, with an average balance of £100,000, will be around £121 more per month.
Skipton said it reserved the right to remove its SVR ceiling under “exceptional circumstances” and this was included prominently within the terms and conditions of the mortgage offer.
The society defined “exceptional circumstances” as either when the bank base rate is less than or equal to 2.7 per cent or when bank rate minus the UK average branch instant access savings rate is less than or equal to 2.5 per cent for each of the three proceeding months.
David Cutter, group chief executive of Skipton, said: “While we understand this change will be unwelcome for those borrowers who will end up paying more as a result, we hope that they will understand it is a necessary step that is in the best interests of our membership as a whole, and indeed the society itself, in the long run.”
For those borrowers whose mortgage terms included the SVR ceiling, Skipton said it will give borrowers 90 days to redeem their mortgage free of charge if they are concerned about the rise.
Ray Boulger of John Charcol said Skipton is likely to lose a lot of its existing customers as nearly all of its current deals - which borrowers may look to move onto - are uncompetitive.
Skipton currently has no tracker rates on offer while its fixed-rates are not market leaders.
It has a three-year fixed-rate at 5.89 per cent available for up to 60 per cent loan to value, with a £895 fee. The rate increases to 6.99 per cent for those with only a 15 per cent deposit and has a £995 fee.
London & Country Mortgage Brokers are launching an SVR Watch webpage and helpline so borrowers affected can talk to an adviser about whether there is a better option. To visit the website go to www.lcplc.co.uk/svrwatch or phone 0800 9530533.
“Skipton borrowers who’ve stuck with the standard variable rate will feel let down and be left with a distinctly bad taste in their mouth. The dismantling of the tracking guarantee will be particularly tough to take for those with little or no equity, who will find their switching options limited or non existent. However, those that do have some equity will rightly ask whether they would be better off moving to a better deal with another lender,” said David Hollingworth of London & Country.
Skipton said it would look to reintroduce the SVR ceiling when conditions have improved.