And, with many borrowers trapped on SVR mortgages, the consumer champion warned that a rate increase could leave thousands of households in financial difficulty.
A 1% increase to the base rate would add over £50 to the monthly repayments of someone with a £100,000, 20-year mortgage. Which? research shows that seven in ten people are worried about mortgage rates and two in ten fear repossession.
More than a fifth of lenders have increased their SVR since the base rate hit an all time low of 0.5% in March 2009. Cheltenham & Gloucester and Lloyds TSB Scotland were the only lenders who are part of the four biggest banking groups to pass on the full cut.
At 6.08%, KRBS has the highest SVR on the market – more than 12 times the base rate. The five other direct lenders with the highest SVRs are all building societies.
The average SVR is now 3.48% above the base rate, compared with 1.95% in September 2008.
Which? chief executive Peter Vicary-Smith, said: “Millions of people are on variable rate mortgage deals and for many a rate hike could mean they’re facing real financial difficulties.
“Banks have enjoyed increased margins on mortgages for the last few years and when the base rate rises again, few lenders will be able to justify passing the full amount onto their SVR customers.”
Responding, the CML said that mortgage markets have changed fundamentally as a result of the financial crisis, reinforcing that base rate is no proxy for the cost to lenders of raising funding.
Since 2008, lenders have been operating in market conditions that have changed significantly, with a shortage of funds, new requirements to hold more capital and liquidity, and increased pressures to help borrowers in difficulty while mortgage arrears are expected to increase. Since base rate reached its historical low point in March 2009, lenders have been affected by:
· New requirements to hold capital and liquidity, which have increased their operating costs.
· Wholesale funding markets that have recovered only partially (and which remain closed to many lenders), reinforcing the dependence of lenders on retail deposits.
· Competitive pressures in the market for retail deposits, as savers seek better returns in response to higher inflation.
· Pressures to extend greater forbearance to borrowers in difficulty at a time when mortgage arrears are expected to rise.
· Pressures to make more mortgage lending available to new borrowers at a time when an increasing number of existing borrowers are reverting to lenders' standard variable rates.
Commenting on market conditions for lenders, CML director general Michael Coogan said: "Lending rates are fundamentally driven by the cost of funds, not the base rate, although the two were more closely correlated before 2008. But this apparent historical relationship has been blown apart by the move to an unprecedented low base rate since March 2009.
"Since the onset of the financial crisis, firms have been operating in lending and funding markets that have changed dramatically, and we have been reinforcing the message that base rate is not a proxy for the funding costs for lenders.
"For borrowers anticipating difficulty, however, the message remains unchanged. They should speak to their lender as soon as possible if they are struggling to meet their repayments, and lenders are committed to helping them wherever they can do so."
