The Spanish-owned bank Santander was accused of "profiteering" last night after it sneaked out a huge mortgage rate hike in letters to customers.
Britain's second-largest mortgage lender told borrowers it is increasing its standard variable rate (SVR) from 4.24 per cent to 4.74 per cent – an increase of almost 12 per cent.
It means a borrower with a £150,000, 25-year repayment mortgage will be forced to pay an extra £528 a year – or £44 a month. Meanwhile, monthly payments on a £100,000 mortgage will rise by £26, or £312 a year.
Santander has also hit customers on a rate cap by raising its SVR cap margin – the maximum amount above the Bank of England base rate it can charge. The margin will increase from 3.75 per cent to 4.99 per cent next month, meaning customers on the now useless cap could see the rate rise to 5.49 per cent.
Santander has already come under fire this month for scrapping a promise of free banking to 230,000 business customers. The "free forever" promise was made when the bank was still called Abbey National.
The bank has 16.8 per cent of the mortgage market, only beaten by Lloyds Banking Group with 19.9 per cent.
Santander refused to divulge how many customers will be affected by the increase – which comes into force on 3 October – but estimates suggested up to 300,000 may be hit.
The bank blamed the increase on "the fact that for the last three years the amount it costs us to provide mortgages and the rates we offer our savings customers have been increasing despite the base rate remaining static".
A Santander spokesman added: "The cost of running a bank in the UK has increased dramatically through a combination of increased liquidity, capital and funding requirements."
But Mark Harris, the chief executive of the mortgage broker SPF Private Clients, said: "This move is profiteering, pure and simple. Interest rates may have been held at 0.5 per cent for three and a half years but lenders such as Santander are raising their SVRs regardless."
Santander's move follows May's announcements of increased SVRs for more than a million borrowers with the Halifax, Co-operative Bank and Clydesdale and Yorkshire Banks.
The Halifax increased its SVR from 3.49 per cent to 3.99 per cent, with similar hikes by the rival lenders.
Other lenders are likely to use Santander's move to raise their own rates, warned independent financial adviser Daniel Bailey of Middleton Finance. "The worry now for borrowers is which lender is next?" he said.
Adrian Anderson, a director of the broker Anderson Harris, agreed: "As Santander has proven, lenders can raise their SVRs on a whim so borrowers have no protection. Rates could rise, even if the base rate doesn't."
But Santander promised to help hard-up customers cope with the increased mortgage charge. It said: "We will consider all particular customer circumstances that might lead to financial difficulties as a result of this change. We will work with our customers on an individual basis and we have developed a programme to help them manage any impacts."Reuse content