Halifax raises mortgage concerns with cap increase on standard variable rate
High street lender – part of Lloyds group – to raise cap on standard variable mortgage rate from 3% to 3.75% in late March
Thousands of Halifax customers could see their mortgage payments rise after the high street lender said it is to increase the cap on its standard variable mortgage (SVR) rate from 3% above bank base rate to 3.75% from 31 March 2012.
The bank, part of the Lloyds Banking Group, which also includes Lloyds, and Cheltenham & Gloucester, has written to 40,000 borrowers who took out a mortgage before September 2007 and have some of their borrowing on the SVR and some on another product with an early repayment charge on it, to inform them of the move.
It said the change would not affect the amount customers paid – currently 3.5% – but the last time it raised the cap it increased its SVR just three months later. In February 2011, the bank was forced to write to 600,000 customers – and repay up to 300,000 of them – after it failed to properly notify customers of a change in the SVR cap from 2% above base rate to 3%. It said its mortgage terms and conditions allowed it to do this and the Financial Services Authority (FSA) did not take enforcement action against the bank.
Andrew Montlake of adviser Coreco Group said the news would cause worry for households already facing pressure on their finances: “For some, low interest rates are essential to keep meeting the monthly payments in these difficult times and if Halifax raise their rates too early this could cause more issues.”
Mark Harris, chief executive of broker at SPF Private Clients, said: “It looks as though Halifax customers currently enjoying one of the cheapest SVRs, at 3.5%, will soon be paying more for their mortgage.
“Customers who thought they were protected by the cap will be angry about this move but it is sadly inevitable that Halifax would want to improve margins on its SVR. Borrowers should check whether they would now be better off remortgaging, particularly if they have significant equity in their home.”
While the Bank of England base rate has remained at just 0.5% for three years, over the last six months lenders have faced an increase in the costs they incur when borrowing money on the global money markets to fund their lending.
Stuart Gregory of Lentune Mortgage Consultancy believes other lenders will raise their SVR as they scrabble to cover the increased costs. “In the same fashion that we’ve seen many lenders now making changes to the criteria around interest-only mortgages, this will be the start of other lenders following suit.
“It will worry a lot of borrowers, especially those who went onto the low standard SVR after their deal expired, but have since seen any financial gain wiped out by a lack of wage growth and other costs, such as utility bills, rising in the meantime. I think there will be a lot more people in financial difficulties in the next two years.”
Gregory said any borrowers looking to remortgage should take a long-term view. “It’s not as simple as just picking the cheapest deal anymore because many mortgages now have expensive arrangement fees, so borrowers end up paying £1,000 just to get a two-year deal that will see them doing it all over again in 18 months’ time. Homeowners should be looking at the next five years.”
A Halifax spokesman said: “This change does not affect the amount customers pay, and the SVR remains at 3.50%. We continually assess the many dynamic factors that impact mortgage pricing, and have reviewed the current cap level to ensure that it remains suitable in the current market conditions.”