Hundreds of thousands of Santander borrowers got a shock this week through the post. The Spanish-owned lender wrote to an estimated 300,000 mortgage customers on its standard variable rate to tell them their repayments would soar by 12 per cent from October – a rise four times the rate of inflation.
The bank's justification? "The cost of running a bank in the UK has increased dramatically," it claimed on Wednesday. Others had a different explanation for the bank's move. "It's profiteering, pure and simple," stated the mortgage broker Mark Harris of SPF Private Clients.
Behind the corporate excuses and accusations is the stark fact that many thousands of borrowers will have to find hundreds of extra pounds simply to keep up with their mortgage payments.
Santander simply told customers that the interest rate will climb from 4.24 per cent to 4.74 per cent from 15 October. That doesn't sound so much but actually means the bank will charge a borrower with a 25-year 150,000 repayment mortgage an extra £528 a year – or £44 a month.
That could be enough to push hard-pressed families over the financial edge, warned Moneysupermarket on Thursday.
It's Affordability Tipping Point report revealed that household finances in the UK are now so stretched that one in three adults believe a rise in monthly outgoings of £50 would push them to financial breaking point.
Of these, one in five say they are now sitting on the brink, finding it impossible to meet their monthly bills and costs. With energy bills set to soar this autumn too things look set to get much worse for struggling families.
Santander is far from being alone in raising its standard variable rate, despite the fact that the Bank of England base rate has remained unchanged since March 2009. In fact the mighty Halifax raised its SVR by a similar amount in May, along with the likes of the Co-operative Bank and Clydesdale and Yorkshire – moves which hit a million borrowers.
Experts predict there will be further bad news ahead for those on standard variable rates with rival lenders.
"The worry now for borrowers is which lender is next?" said the independent financial adviser Daniel Bailey of Middleton Finance. "I have been warning clients about reviewing their mortgage for the last year because their lender may arbitrarily increase their SVR, as has happened this week. Santander increasing its SVR should be a worry to all borrowers as other lenders will follow and look to increase their profit margins."
Adrian Anderson, director of the broker Anderson Harris, said: "As Santander has proven, lenders can raise their SVRs on a whim, so borrowers should not take for granted that rates won't rise, even if base rate doesn't."
Santander – along with other lenders that increase SVR – know that it can get away with it because many borrowers have effectively become mortgage prisoners. They are unable to switch to a better deal because they don't have enough equity in their home, or their circumstances have changed since they took out their loan so they no longer meet lenders' criteria.
'If you find yourself in this situation, seek advice," said Mr Anderson. "You can use savings earning next-to-nothing to reduce your outstanding loan which will improve your equity position, for instance."