Expert says lenders' SVRs to be immediately impacted
Following the Bank of England’s latest base rate increase, some mortgage lenders have quickly to raises interest rates.
The Leeds Building Society increased its tracker rates by 0.50% and withdrew its residential three-year fixed rate. The mutual, however, launched a two-year fee-free retirement interest-only product.
Skipton Building Society has upped its standard variable rate (SVR) by 0.25% to 6.5%, effective August 1. Its mortgage variable rate will also increase by 0.25% to 6.79%.
Santander, meanwhile, announced an increase in its tracker rates and in Alliance and Leicester tracker product rates by 0.50%, effective August 1 for existing customers. All tracker and follow-on rates will have their rates increased, starting June 27 for new customers and product transfers. The bank’s standard variable rates for both Santander and Alliance and Leicester products have been maintained at 7.5%.
Digital lender Atom bank also maintained its standard variable mortgage rate of 6.99%, saving its customers an average of £454 on their annual payments by not passing on any of the 0.5% base rate rise.
According to Atom, other lenders’ SVR rates now stand as high as 8.74% as some have passed on the full rate rise for every Bank of England base rate increase since December 2021 to customers.
“While SVR offers flexibility to customers, which does demand a premium, it’s clear that many high street banks are using the current environment to widen margins on both sides of their balance sheet,” said Mark Mullen, chief executive at Atom bank. “Their low easy access savings rates are well documented, and it’s clear they are also using SVR as another tool to squeeze profits from customers.”
Will Rice, chief executive at residential mortgage lender Generation Home, pointed out that the immediate impact of Thursday’s base rate hike would be to lenders’ standard variable rates, which react most often in proportion with the base rate increase.
“Lenders may boast that they’re not passing the entire increase along to their SVR customers, but unless they are passing along the benefit of those high interest rates to their savings customers, it’s all just lip service,” Rice said. “Another SVR increase could put some households in serious financial difficulty.”
He added that another immediate impact would be changes to lenders’ affordability calculations.
“Following a base rate hike, lenders might choose to offer less to mortgage applicants,” Rice continued. “Aspiring buyers who could afford their dream home on Wednesday may not be able to on Thursday.
“The right kind of mortgage support could lessen the burden of this extremely difficult landscape on homeowners. But any solutions need to support renters, too, who are also facing extremely high monthly payments and even less security than homeowners.”
Ben Beadle, chief executive of the National Residential Landlords Association, said the base rate increase would add further pressure on renters and landlords alike, adding that 85% of buy-to-let mortgages were interest only, meaning they were particularly exposed to the impact of rising mortgage costs.
“Consecutive base rate hikes have seen landlords’ mortgage payments rise exponentially, with some increasing by almost 240% since December 2021, threatening the viability of their businesses,” Beadle stated. “The Chancellor must take urgent action to support the rental market by reintroducing mortgage interest relief in full and by unfreezing housing benefit rates.”
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