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.

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.

Sport
football This was Kane’s night, even if he played just a small part of it
Travel
travel Dreamland Margate, Britain’s oldest amusement park, is set to reopen
News
news
News
Founders James Brown and Tim Southwell with a mock-up of the first ever ‘Loaded’ magazine in 1994
media
News
Threlfall says: 'I am a guardian of the reality keys. I think I drive directors nuts'
people
Voices
voices The group has just unveiled a billion dollar plan to help nurse the British countryside back to health
News
The Westgate, a gay pub in the centre of Gloucester which played host to drag queens, has closed
news
Finacial products from our partners
Property search
  • Get to the point
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: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

    The saffron censorship that governs India

    Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
    Prince Charles' 'black spider' letters to be published 'within weeks'

    Prince Charles' 'black spider' letters to be published 'within weeks'

    Supreme Court rules Dominic Grieve's ministerial veto was invalid
    Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

    How did fandom get so dark?

    Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
    The galaxy collisions that shed light on unseen parallel Universe

    The cosmic collisions that have shed light on unseen parallel Universe

    Dark matter study gives scientists insight into mystery of space
    The Swedes are adding a gender-neutral pronoun to their dictionary

    Swedes introduce gender-neutral pronoun

    Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
    Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

    Disney's mega money-making formula

    'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
    Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

    Lobster has gone mainstream

    Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
    Easter 2015: 14 best decorations

    14 best Easter decorations

    Get into the Easter spirit with our pick of accessories, ornaments and tableware
    Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

    Paul Scholes column

    Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
    Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

    The future of GM

    The greenhouses where Monsanto 'plays God' with the future of the planet
    Britain's mild winters could be numbered: why global warming is leaving UK chillier

    Britain's mild winters could be numbered

    Gulf Stream is slowing down faster than ever, scientists say
    Government gives £250,000 to Independent appeal

    Government gives £250,000 to Independent appeal

    Donation brings total raised by Homeless Veterans campaign to at least £1.25m
    Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

    The most borrowed book at Bank of England library? Oh dear

    The book's fifth edition is used for Edexcel exams
    Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

    Cowslips vs honeysuckle

    It's the hunt for UK’s favourite wildflower
    Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

    Did a botched blackmail attempt help Cyril Smith escape justice?

    A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss