Skipton makes first move in a rate rise rush for societies
The days of rock-bottom mortgages may be over once one of the biggest lenders hoists its standard variable rate.
Saturday 23 January 2010
Mortgage rates are set to soar for hundreds of thousands of borrowers after the Skipton this week announced plans to raise its standard variable rate by almost half – despite there being no increase in the bank base rate for a year.
And other building societies are likely to follow Skipton's lead warns Melanie Bien, director of independent mortgage broker Savills Private Finance.
"Some of the smaller lenders who need to repair their balance sheets have started raising their standard variable rates as a way of clawing in some extra cash," explains Bien. Building societies which have increased their SVR so far include Ipswich, Cambridge, Scottish, Marsden and the Mansfield.
"The lenders are within their rights to do so but borrowers may question how fair this is, considering that interest rates have not risen," says Bien.
"As many borrowers are enjoying cheap SVRs, it is a real blow to suddenly see your mortgage payments rise. And now that the Skipton – one of the larger building societies – has made the move, it makes it easier for the others to follow suit as they will get less flack."
The Skipton – which has just over 100,000 borrowers – will increase its rate from 3.5 per cent to 4.95 per cent from 1 March, leaving borrowers on a typical £150,000 mortgage needing to find around an extra £1,500 a year.
The increase will also apply to the Society's specialist lending subsidiary, Amber Homeloans.
The Skipton's move doesn't just disadvantage its borrowers, who will end up paying more for their standard rate mortgage than millions of others. It also means the building society will break a pledge to borrowers that its standard variable rate would never be more than 3 per cent higher than base rate – currently 0.5 per cent.
The society claims it is simply responding to "exceptional market conditions" and it reserves the right to remove its SVR ceiling under exceptional circumstances.
"While we understand this change will be unwelcome for those borrowers who will end up paying more as a result, we hope that they will understand it is a necessary step that is in the best interests of our membership as a whole, and indeed the Society itself, in the long run," says Skipton boss David Cutter.
He says the SVR ceiling will be reintroduced in the future, once the exceptional circumstances no longer prevail. But that may be too late for borrowers suddenly facing massively increased mortgage payments.
"A few years ago Skipton was a regular in fixed rate mortgage best buys and as a result was one of the biggest building societies for mortgage business," points out Michelle Slade of Money facts.co.uk. "Skipton is now paying the price for this aggressive approach as many of its borrowers now come to the end of their deal. The guarantee Skipton had in place meant they had one of the lowest SVRs on the market and with market conditions as they are, there was very little incentive for these borrowers to move on and find a new deal. The move will be a bitter blow for these borrowers, but the lender's SVR still remains competitive when compared to other societies."
In fact the average SVR of the top 10 building societies is currently 5.12 per cent.
"All eyes may now be on Skipton but it's not the first to raise its SVR – some of the smaller building societies did this towards the end of last year, although Skipton is clearly one of the more prominent players," says Hannah-Mercedes Skenfield of moneysuper market.com. "The news is almost guaranteed to signal the start of SVR rate rises across the board – when one big provider moves, the others usually follow."
Borrowers on standard variable rates have been laughing in recent times as their mortgage payments have sunk to rock bottom as the base rate has remained stuck at 0.5 per cent. People coming to the end of higher fixed rates have been glad to be able to switch to a lower standard variable rate, points out Skenfield. "Base rate languishing on 0.5 per cent for the past year has meant it's often been cheaper to move to an SVR. They have provided somewhat of a haven for cash-strapped homeowners over the past 12 months.
"But people relying on the safety net of a low SVR could now find themselves stranded. It's absolutely vital that borrowers with an SVR deal remain vigilant, especially over the coming weeks, when we could see more of the same from other lenders."
Anyone facing an increased SVR should consider switching lenders and deals, according to Melanie Bien.
"The only thing you can do is to keep an eye on your lender," she says. "If it raises the SVR, it may be time to move your mortgage elsewhere. If you are opting for a new variable-rate deal, consider a base-rate tracker rather an a discounted-variable rate: the former is completely transparent as it is connected to base rate, while the latter is linked to the lender's SVR so can be increased at the lender's discretion, even if interest rates haven't moved."
Property market highs and lows
Buying a house is less affordable now than it was 50 years ago, according to the Halifax. The average UK house price climbed from £2,507 in 1959 to £162,085 in 2009, a rise of 273 per cent, after allowing for the effects of inflation.
Despite the recent problems in the property market, house prices recorded their biggest increase in the last 10 years with a real rise of 62 per cent during the 2000s, slightly ahead of a 61 per cent increase in the 1980s.
The worst performing decade for house prices was the 1990s when prices fell by 22 per cent in real terms.
Martin Ellis, Halifax housing economist, says the last half century had seen some remarkable changes in the UK housing market.
"There has been a significant shift towards owner-occupation, with the majority of households now living in their own homes rather than renting. There have also been substantial changes in both the composition of households; the typical UK household now is very different to 50 years ago."
He says that the types of homes built had altered greatly both in terms of type and amenities. For instance between 1960 and 1996, the percentage of households without an inside toilet fell from 14 per cent to just 0.2 per cent.
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