Is your lender taking the rise?

If your mortgage bill has increased too much, take action, says Stephen Pritchard

The Bank of England's decision to increase its base interest rate to 4.75 per cent last month shocked few in the financial markets: the move was widely anticipated.

Home owners, though, might be surprised to find that their mortgages have increased, and in many cases, by more than the base rate. Those with standard variable rate mortgages have been the hardest hit.

Not only have standard variable rates risen in many cases by more than the 0.25 per cent increase in the Bank's base rate, but in many cases banks and building societies are now charging rather more for money than they were last time base rates were at 4.75 per cent, in 2005.

"Out of the 41 lenders we have surveyed, more than half have a higher standard variable rate [SVR] mortgage than they did last time the base rate was 4.75 per cent," says Melanie Bien, associate director of mortgage brokers Savills Private Finance. "This widening of margins on the sly is definitely something borrowers should watch out for and be on their guard against."

Savills has a point. SVR mortgages are already the most expensive way for a home owner with a decent credit history to buy a home. Only a sub-prime mortgage will cost more.

The latest round of increases only serves to underscore the high cost attached to SVRs. Moneyfacts, the financial researcher, points out that the average SVR now stands at 6.75 per cent, or 3 per cent higher than Bank of England base rates. Some lenders charge even more: the most expensive surveyed by Savills was Birmingham Midshires, at 7.09 per cent. Credit, though, should go to Leeds Building Society, which increased its SVR by 0.24 per cent, less than the base-rate rise.

What is happening with lenders' standard variable rates?

A handful of exceptions aside, most are going up. A couple of lenders, including NatWest and Royal Bank of Scotland, have put their rates up by 0.3 per cent rather than 0.25. Standard Life increased its rate by 0.31 per cent.

"Only a handful of lenders took advantage of the opportunity to increase by 0.3 per cent instead of 0.25 per cent," says Katie Tucker, mortgage specialist at John Charcol. "Lenders have kept largely the same rates as before: a clean 0.25 per cent down last time and the same 0.25 per cent up this time."

But lenders have moved their SVRs upwards to the point where most now charge more than they did last year when rates were last at 4.75 per cent. The Co-operative Bank put its rates up for existing customers by 0.25 per cent at the start of last month, and again after the Bank of England rise. Others, such as Nationwide, also now charge more than they did in 2005.

Is there an alternative?

No borrower really needs to pay their lender's SVR, mortgage experts point out. Standard variable rates are expensive, significantly more so than the best tracker and fixed rates. But they offer flexibility, because arrangement fees are low and there are usually no redemption penalties.

But an SVR mortgage is not the only way to avoid being locked in to a particular mortgage lender. There are tracker loans on the market without redemption penalties, such as Abbey's, which costs 5.24 per cent. This contrasts with the same lender's standard variable rate of 6.75 per cent.

For home owners coming to the end of a discount or fixed rate mortgage, the automatic option will be for the lender to switch them to an SVR. But unless the mortgage is very small - when remortgage fees could be an issue - a tracker will usually be cheaper.

Is a tracker always better value?

Trackers offer lower interest rates. For some best-buy mortgages, tracker rates are now lower than in early 2005, according to Bien.

Halifax now charges 0.19 per cent over base rates for its two-year tracker against 0.44 per cent in January 2005. Northern Rock charges 4.99 per cent, against 5.19 per cent in February last year.

Although tracker rates some lenders offer new customers are higher than they were 18 months ago, any rate changes will at least be set by the Bank of England, and not by your lender.

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Software Development Manager

    £40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Product Manager - (Product Marketing, Financial Services)

    £30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Day In a Page

    Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

    Michael Calvin's Last Word

    Time for Old Firm to put aside bigotry and forge new links
    Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

    Isis hostage crisis

    The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
    Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

    The runaway buccaneers and the ship full of gold

    Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Maverick artist Grayson Perry backs our campaign
    Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

    Assisted Dying Bill: 'I want control of my life'

    This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
    Move over, kale - cabbage is the new rising star

    Cabbage is king again

    Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
    11 best winter skin treats

    Give your moisturiser a helping hand: 11 best winter skin treats

    Get an extra boost of nourishment from one of these hard-working products
    Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

    Paul Scholes column

    The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
    Frank Warren column: No cigar, but pots of money: here come the Cubans

    Frank Warren's Ringside

    No cigar, but pots of money: here come the Cubans
    Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

    Isis stands strong as its numerous enemies fail to find a common plan to defeat it

    The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

    Virtual reality: Seeing is believing

    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
    Homeless Veterans appeal: MP says Coalition ‘not doing enough’

    Homeless Veterans appeal

    MP says Coalition ‘not doing enough’ to help
    Larry David, Steve Coogan and other comedians share stories of depression in new documentary

    Comedians share stories of depression

    The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
    Has The Archers lost the plot with it's spicy storylines?

    Has The Archers lost the plot?

    A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
    English Heritage adds 14 post-war office buildings to its protected lists

    14 office buildings added to protected lists

    Christopher Beanland explores the underrated appeal of these palaces of pen-pushing