First step towards a rate rise ?

Hundreds of thousands of customers could see their mortgage payments rise after Britain’s biggest mortgage lender said that it is raising the cap on its Standard Variable Rate (SVR) – the first step towards a rate rise.

Halifax, part of Lloyds Banking Group, has written to forty thousand customers indicating that it is raising the cap on its SVR to 3.75pc above Bank of England Base Rate or 4.25pc. These forty thousand customers are the only ones who have this guarantee. However, hundreds of thousands of other customers will also suffer if the bank raises its SVR by quarter of a per cent, as this is the rate most mortgages revert to when they come to the end of their initial period. This rate is currently 3.5pc, equivalent to the current cap of 3pc above Bank Rate.

The cap applies only to customers who have an Early Repayment Charge on their mortgage. These borrowers are now being given three months to change their mortgage to another lender or repay it without charge. The bank said that rise should not be read as an indication that the SVR was about to rise. However, a spokesman said that the change to the cap had been driven by “increases in the cost of funding” despite the fact that Bank Rate has not changed from a rock bottom 0.5pc for three years.

If the bank does increase its SVR by 0.25pc, the move could add over £500 a year to the cost of a £200,000 mortgage – an increase that many families can ill afford. Last time the bank raised the cap on its SVR, it raised the rate to equal the cap three months later.

Halifax has already run into difficulties with its SVR cap. In October 2008 it wrote to customers affected by the cap, announcing that it was raising it from 2pc above Bank Rate to 3pc. However, because other customers also thought they were affected by the cap, and did not receive a letter, Lloyds paid out goodwill payments worth £500m.

Halifax's move paves the way for other mortgage companies to raise the SVRs that have enabled millions of people to survive the recession because of their low mortgage payments.

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If you are concerned about this and would like to talk about it further , do feel free to get in touch.

As always thanks for your attention.

Mark (mark@themortgagemonkey.co.uk)