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Sunday, March 4, 2012

Why Halifax and RBS will raise SVR rates

Why Halifax and RBS will raise SVR rates, Halifax will raise SVR rate may 2012, Mortgage experts are warning homeowners who are on a standard variable rate (SVR) mortgage deal to review their options following the decision by the Halifax and the Royal Bank of Scotland (RBS) to increase the cap on SVR deals in relation to their link to the Bank of England base rate.

Halifax, the UK's biggest mortgage lender will raise it's SVR from the May 1st from 3.50 per cent to 3.99 per cent.. Halifax said it had made this decision because of the higher cost of raising funds for mortgages from both savers and the financial markets.

The increase will add about £300 a year to mortgage payments for someone with a £100,000 mortgage.

Last week RBS said that it would raise its SVR rates from 3.75 per cent to four per cent on three of its mortgage products.

A spokesman from the Halifax said: "The change acknowledges that the cost of funding a mortgage in today's market remains significantly higher than the longer term average.".

"The increase to the rate reflects the fact that raising money through retail savings and in the wholesale markets is currently very expensive by historical standards."

The fact that a large mortgage lender like the Halifax is raising its SVR increases the likelihood that other borrowers will follow suit. Indeed, RBS already has; it has increased the rate on Natwest and RBS lifetime offset tracker mortgages by 0.25 per cent to four per cent and customers who have a One account have seen a similar increase on two products. The changes by RBS will affect 200,000 borrowers.

Both Halifax and RBD have blamed the increases on the high cost of borrowing and the increase in the LIBOR rate due to uncertainty in the eurozone.

The change will affect millions of people if most other lenders follow suit because with base rate so low, millions of homeowners have settled on their lenders SVR without choosing a new product because they are paying less on the SVR than they are used to paying.

The section of mortgage holders that could potentially face the biggest problem are those that over-borrowed in the first place and will have to stick with their current lender because they will be unable to mortgage in a stricter credit climate.

The Bank of England has released figures that reveal collectively UK homeowners have saved half a trillion pounds in mortgage interest payments in the last three years since the Bank of England reduced base rate to its historic low level of 0.50 per cent. This works out at £50,820 for each of the 11.2 million mortgages in the UK.

The mortgage savings have subsidized households in paying more for other essentials such as food, petrol, insurance and gas and electricity. If more lenders decide to follow the lead of Halifax and RBS, this subsidy could disappear, plunging already struggling households into further financial difficulties.

If you are in a relatively good position with steady income and plenty of equity there are many good fixed and variable rate mortgage deals around. If you know that you will be unlikely to be accepted for a remortgage deal because you have bad credit or are in negative equity and believe that an increase in the SVR from your lender could make it very difficult for you to pay your mortgage you should speak to your lender.

Halifax says that customers who wish to transfer their SVR balance to a new Halifax product or a different lender will not incur an early repayment charge.

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