Santander hikes variable mortgage rate to 4.74%
Tuesday 02 October 2012
Mortgage costs for thousands of borrowers will jump from tomorrow when one of the country's biggest lenders hikes its standard variable rate (SVR).
Santander's 0.5% rise to 4.74% will result in an average increase of £26 a month or £312 a year for a typical £100,000 mortgage.
The switch is expected to affect hundreds of thousands of customers, although Santander has not disclosed the figure.
Santander's SVR change, first announced in August, is one of a number by lenders in recent months, dashing hopes that households will see some benefit from the Bank of England's funding for lending scheme.
Santander blamed the increase on its own funding costs and pointed out that similar market dynamics drove its competitors to push up their SVR rates five months ago.
More than a million home owners saw their mortgage rates increase in May as lenders such as Halifax, the Co-operative Bank and Clydesdale and Yorkshire Banks raised their SVR rates, even though the Bank of England base rate remained at a historic 0.5% low.
At the end of August, Britain's biggest building society Nationwide announced it was pushing up some mortgage rates for new borrowers, adding 0.3% on some fixed-rate products and 0.2% on tracker deals.
While in its early stages, the funding for lending scheme has sparked some increased competition among mortgage lenders, although much of this has been concentrated around borrowers with larger deposits of around 40%.
Lenders have said mortgage availability has been boosted by the scheme, although they have tightened their borrowing criteria and do not expect this to loosen in the next few months.
Fears have been raised that many people hit by the SVR increases will struggle to switch to a cheaper deal and could find themselves trapped, with average SVR rates at their highest levels in three and a half years.
The typical SVR rate had climbed to 4.27% by the end of August, the highest since spring 2009, according to Bank of England figures.
Santander said its own SVR increase was prompted by a range of factors, including the increased cost of funding a mortgage.
A Santander spokesman said: "Additionally, the cost of running a bank in the UK has increased dramatically through a combination of increased liquidity, capital and funding requirements."
An SVR is the default rate that mortgages tend to switch to once an initial fixed or tracker deal period ends.
David Hollingworth, associate director of London and Country Mortgages, said: "If you're on an SVR, which is something that more borrowers are stuck with because of the way the market has moved, you can't just feel you are sitting pretty because nothing is happening with base rates.
"I would not be surprised to see other lenders following suit."
Speaking generally about the upward movement in SVR rates, a spokesman for the Council of Mortgage Lenders (CML) said that the funding for lending scheme has been launched at a time when lenders' rates are seen as facing an upward pressure amid the tough economy.
He said the scheme could result in rates being lower than they might have been had the initiative not been in place and each lender would be affected differently.
This means some rates might still go up, but to a lesser extent than they would have done without funding for lending.
"Rates may be lower than they would otherwise have been, but this does not necessarily mean lower in absolute terms," the spokesman said.
"The scheme has only just been introduced from the beginning of August, and it is scheduled to run for 18 months."
A Santander spokesman pointed out that the lender has a range of deals on offer for new customers as a direct result of the funding for lending scheme, which is what the initiative was designed for, as a stimulus for new lending.
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