Homeowners stung as mortgages rates hit four-year high despite Bank of England base rate remaining at historic low

Becky Barrow


00:13 GMT, 19 January 2013



09:53 GMT, 19 January 2013

Mortgage worries: Homeowners are having to face rising costs

Mortgage worries: Homeowners are having to face rising costs

Homeowners are being stung by the highest variable mortgage rates for nearly four years despite the Bank of England keeping the base rate at an historic low.

Official figures show the average standard variable rate mortgage deal, known as the SVR, from a bank or building society charges an interest rate of 4.35 per cent.

This is the type of mortgage deal which homeowners are automatically moved on to when their current deal, such as a two-year fixed loan or a three-year tracker, comes to an end.

For a family with a repayment mortgage of 100,000, the rising cost of an SVR mortgage deal means they are paying a monthly bill of 547.

By comparison, if they were paying an interest rate of only 2.5 per cent – which is the best deal on the market – they would pay only 449 per month.

Millions of homeowners have remained on the SVR since the Bank cut the base rate to 0.5 per cent in March 2009, the lowest level since it was founded in 1694.

The Bank of England figures reveal the average SVR deal has increased every month since the Government and the Bank of England’s 80billion scheme to help homeowners was launched in August.

Under the Funding for Lending scheme, banks can borrow an unlimited amount of money for as little as 0.25 per cent as long as they maintain, or increase, their lending.

They must use the money to benefit the economy, such as handing out mortgages to first-time buyers and homeowners or giving loans to small businesses.

A Bank official admitted for the first time that the Funding for Lending scheme is hurting savers

A Bank official admitted for the first time that the Funding for Lending scheme is hurting savers

At the end of July, the average SVR was 4.24 per cent, compared to 4.35 per cent in December, according to the latest figures from the Bank.

On Tuesday [15feb], a Bank official admitted for the first time that the Funding for Lending scheme is hurting savers – and may not be helping borrowers as much as it had hoped.

Andrew Bailey, an executive director of the Bank, said the ‘jury is still out’ on whether the scheme is bringing down the cost of bank loans as much as had been expected.

He told MPs on the Treasury Select Committee: ‘The jury is still out on whether we have seen as much adjustment there as you would expect to see and ought to see.’

A long list of banks and building societies have increased their SVR deals, with others likely to follow as banks seek ways of making more money from their customers.

Halifax, Santander, Yorkshire Bank, the Co-op, Bank of Ireland and ING Direct increased their SVR last year.

Some of the biggest winners are homeowners who have a mortgage with Nationwide Building Society which was taken out before April 2009. Their SVR is just 2.5 per cent due to the society’s pledge to fix the rate at just two percentage points above the Bank’s base rate.

The pledge has been a huge money-saver for its customers. Nationwide estimates it has cost the building society around 750million last year. New customers are not eligible for the attractive deal.

David Hollingworth, from the mortgage advisers London & Country, said: ‘The more competitive new deals coming out are in sharp contrast with what has been happening to SVRs.

‘They have been gradually moving up. It should kick-start more people into hunting for a better mortgage deal.’

Matthew Pointon, property economist at the consultancy Capital Economics, said: ‘It appears that lenders have simply decided not to pass on these more favourable funding costs to their customers.

‘SVRs are primarily paid by existing, rather than new, borrowers. Therefore there is less incentive to cut SVRs compared to the rates on new loans.’

A Council of Mortgage Lenders spokesman said it is wrong to assume that banks can borrow money to hand out in mortgages at the Bank of England’s base rate of 0.5 per cent.

She said: ‘People tend to assume that the cost of funds to lenders equates to the base rate, but this is not the case.’