Borrowers are being warned about the danger of sitting on a mortgage lender’s standard variable rate (SVR) after another bank confirmed it was increasing its rates due to the rising cost of wholesale funding.
Bank of Ireland has become the latest lender to announce plans to increase its SVR – the rate customers revert to when their mortgage deal comes to an end – from 2.99 per cent to 4.49 per cent.
The move follows last week’s announcement by Halifax, the UK’s biggest mortgage lender, that it will raise its SVR from 3.5 per cent to 3.99 per cent from May 1, increasing mortgage repayments for about 850,000 homeowners.
Bank of Ireland customers have been notified by the bank about the 1.5 percentage points increase in its SVR. A bank spokeswoman said the increase would be implemented in two stages. From June, the SVR will rise by 1 percentage point from 2.99 per cent to 3.99 per cent, and in September it will increase by a further 0.5 percentage points to 4.49 per cent.
The rate increase is expected to affect about 100,000 Bank of Ireland customers, but it will not affect the bank’s Post Office branded mortgage customers.
Both banks have blamed the rises on the higher cost of funding mortgages from both the wholesale and retail markets.
Bank of Ireland is providing a support line for customers concerned about the impact of the increase and has also partnered with London & Country, the mortgage broker, to offer a free mortgage review.
Mortgage brokers warn that these changes highlight the danger of sitting on a lender’s SVR, as most banks and building societies can increase them at any time. Unlike most tracker rates, these variable rates are not tied to the Bank of England base rate.
Other lenders announced increases to their SVRs late last year as the eurozone sovereign debt crisis drove up funding costs for banks. In November, Handelsbanken, the Swedish private bank, increased both its base rate and SVR by 0.25 percentage points, to 1.75 per cent and 4.75 per cent, respectively.
In the same month, Bank of Scotland for Intermediaries and The Mortgage Business – two brands owned by Lloyds Banking Group, but which both closed to new business during the downturn – increased their SVRs, from 4.84 per cent to 4.95 per cent, affecting about 175,000 borrowers.
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