Halifax in mortgage hike
Anger as rise comes despite record low interest rate
Halifax has become the second major lender in as many days to reveal hikes in mortgage costs, confirming it is raising its standard variable rate (SVR).
Some 850,000 borrowers will see their mortgage costs increase as the rate rises from 3.5% to 3.99% from May 1, due to the “significantly higher” costs of funding a mortgage in the current economic climate.
The move comes after RBS-Natwest confirmed it is pushing up rates on two of its products —the Offset and The One Account — by 0.25%, taking them to a rate of 4%, affecting around 200,000 customers.
The hikes come despite the Bank of England maintaining the base rate at a historic 0.5% low and have been branded “shocking” by the Consumer Action Group.
Halifax said those wanting to transfer to a new product with itself or another lender will not incur an early repayment charge.
It is offering fee-free transfers for borrowers wanting to switch deals and said a customer with a 60% loan-to-value (LTV) mortgage could apply for a two-year fixed deal at 3.49% with no fee, for example.
Halifax is writing to customers to explain the changes and said they will be given a clear breakdown of what they mean.
The lender said it wanted to “support customers” through the changes and anyone with concerns should get in touch.
This marks the first time Halifax has increased its SVR in nearly five years, the last time being in August 2007 when the rate went from 7.5% to 7.75%.
Customers who have taken out a mortgage since January 4, 2011 will not be affected by the changes.
Halifax confirmed last week that it plans to raise its cap from 3.5% to 4.25% in April, meaning the 3.99% rate would still leave room for a higher charge.
Analysts have warned that lenders are expected to tighten up on borrowing this year amid the weak economic conditions.
Halifax has said several factors such as the eurozone crisis and the general economic climate have affected the situation.
It said in a statement: “The change acknowledges that the cost of funding a mortgage in today's market remains significantly higher than the longer term average.
“Throughout 2007, prior to tightening economic conditions, the average savings rate was 1.18% lower than the Bank of England base rate. However, since 2008, the average savings rate is 1.27% higher than the Bank of England base rate.
“This demonstrates the increased cost that banks must pay to attract retail deposits.”
An RBS spokesman said the rises it had announced were due to growing costs.
He said: “Over the last year the cost of funds at which we need to borrow at to fund our mortgage commitments has risen considerably.
“We have absorbed the cost during this period but have now decided to pass on some of this increase, 0.25% to our Offset and The One Account customers.
“For the majority of our Offset and One Account customers their new rate will be 4%, the same as our standard variable rate.”
The average balance of Halifax customers affected by the mortgage rise is £67,500, meaning payments would increase by nearly £16.40 a month to £498.95 — some £200 extra a year.
Someone with a higher balance of £100,000 would pay £24.30 extra a month, with monthly repayments going up to £739.19, nearly £300 more annually.