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Spend & Save

Will your lender raise its standard variable rate?

The bank rate was kept on hold this week, but despite that some lenders have increased the cost of mortgages

Moves by Halifax, RBS, the Bank of Ireland and, yesterday, Yorkshire Bank to increase mortgage rates for some have panicked borrowers.

But, depending on your current deal, it could be a mistake to rush to fix your mortgage to avoid a hike in the standard variable rate (SVR).

Experts say that the wave of SVR increases in the past week won't spread across the market.

"I don't think that these recent moves will necessarily result in a wave of copycats," said David Hollingworth of London & Country Mortgages.

"Most borrowers on SVR are unlikely to be hit with a rise this year," said Ray Boulger of John Charcol.

But he warned that those borrowers with lenders who no longer offer new mortgages are at the greatest risk of an increase.

"Bank of Ireland highlights the risk for borrowers with lenders which are no longer active," he said.

Bank of Ireland withdrew from new mortgage lending in the UK under its own brand and the Bristol & West brand in January 2009.

But more than 100,000 homeowners still with the lender now face a huge increase in their mortgage payments after the bank this week announced an increase in its SVR from 2.99 per cent to 4.49 per cent.

The rate hike will be introduced in two parts, climbing 1 per cent in June and 0.5 per cent in September. But the move will mean anyone with a £150,000, 25-year repayment mortgage will have to find an extra £122 per month to cover their mortgage payments.

"Many who were very happy to stay with Bank of Ireland while they were paying only 2.99 per cent will now look to remortgage," said Mr Boulger.

However, only those with at least 15 per cent equity in their home are likely to find a cheaper fixed rate for up to five years or a variable rate.

Last week Halifax increased its SVR from 3.5 per cent to 3.99 per cent, hitting some 800,000 customers. RBS and NatWest, meanwhile, raised the SVR for its offset mortgage customers by 0.25 per cent to 4 per cent. Yorkshire and Clydesdale Banks will raise SVR for 30,000 borrowers to 4.95 per cent from 4.59 per cent.

"Some borrowers... who want to continue on interest-only will have become mortgage prisoners," said Mr Boulger.

What about other lenders?

Santander said: "We have no plans to change our Santander or Alliance & Leicester standard variable rates in the immediate future."

The Nationwide has promised that its base mortgage rate would be no more than 2 per cent above base rate.

"We have honoured that promise, and will continue to do so," a spokeswoman said this week.

But Mr Hollingworth said borrowers need to be aware of the potential for increases in rates.

"It would be naive to think there won't be any other lenders keeping their position under review when a lender as significant as Halifax takes the step of hiking its variable rate, despite no change in the base rate."

It was kept on hold this week at 0.5 per cent by the Bank of England.

"Borrowers only really know how their rate will behave if it is directly pegged to the base rate or is locked into a fixed deal," he said.