Some building societies are charging mortgage customers twice as much interest as banks, adding up to £1,000 to the cost of monthly payments. Seven regional building societies have standard variable rates (SVR) of between 5.84 per cent and 6.45 per cent; most banks are charging 3 or 4 per cent, and the Bank of England base rate has fallen to a historic low of 1 per cent.
Direct Line, part of the maligned RBS Group, is offering the lowest standard variable deal to borrowers: 2.5 per cent. The difference between rates can mean charges of hundreds of pounds a month for a homeowner. On a £150,000 interest-only home loan, someone with First Direct would pay £312 a month, and someone with the most expensive building society, Chesham, would pay £806 – £494 more. On a £300,000 mortgage, the building society customer would pay almost £1,000 more a month.
Building society representatives say they are keeping their mortgage rates high so they will not have to reduce savers' rates, which have plummeted along with the base rate. But the rates offered at some of the smaller societies in England has raised eyebrows. At the most expensive side of the mortgage market, Stroud & Swindon Building Society is charging 6.29 per cent and Chesham Building Society 6.45 per cent. Nottingham and Newcastle building societies are both charging 5.99 per cent while three others are slightly cheaper; Kent Reliance 5.98 per cent, Market Harborough 5.95 per cent and West Bromwich 5.84 per cent.
"I have never seen such a discrepancy in what's available," said one mortgage expert, David Black, of Defaqto, who has analysed the figures. "Most SVRs will be 3 to 5 per cent. The Halifax are going to move to 4 per cent and Nationwide and the Cheltenham & Gloucester are at 3 per cent." The deals show how the mortgage market is moving wider apart during the credit crunch as lenders rebuild their balance sheets and focus on new priorities. "We need to balance the needs of our borrowers and savers," said a spokeswoman for Newcastle Building Society, defending its SVR.
Most customers are on fixed and capped rate deals, so will be unaffected by changes in SVR; but about 10 per cent of mortgage holders are estimated to be on a variable rate. In theory, borrowers can shop around for a better rate when a cheap deal finishes. But many customers with the seven building societies – who have £16bn worth of mortgages between them – may be unable to move because so few mortgage deals are available. "The people I feel sorry for are the ones with a high loan to value and are effectively trapped in these rates," said Mr Black. "There are few 90 per cent mortgages around; in fact, there are virtually none."
Neil Johnson, the mortgage policy adviser for the Building Societies Association (BSA), which represents 55 building societies, said: "Particularly important is the need to look after savers' interest because so many building societies are dependent on savers for their lending. He added that the tightening of global money markets where institutions can raise funds to lend was also influencing building society rates.
Newcastle Building Society said it needed to preserve its net interest margins to ensure its capital position remained strong. A spokesman said: "We are not exploiting the situation to make excessive or unreasonable profits. We have reviewed our SVR position and agree with the BSA and other organisations that if mortgage rates continue to fall further, savings rates will have to fall to unacceptably low levels. Newcastle Building Society needs to preserve its net interest margins to ensure our capital position remains strong."
Chesham Building Society declined to comment.