Lenders Already Passing On Interest Rates Rise To Consumers

Millions of homeowners are bracing themselves for higher mortgage repayments as lenders begin to pass on last week’s quarter point Bank of England base-rate rise.

Abbey, Halifax and Northern Rock and subsidiaries of Royal Bank of Scotland, including Tesco, the One Account and First Active, were among the first few lenders to announce that they would pass on the full 0.25 percentage points to borrowers with standard variable rate (SVR) mortgages or discounted deals.

A Halifax customer with £100,000 left to pay on a SVR will see his or her repayments go up from £675.21 a month to £690.91 — £188.40 a year.

For most SVR borrowers, the change will take effect from September 1. But new customers taking variable rates could start paying the extra as soon as next week. For the growing number of borrowers on tracker deals, the additional 0.25 percentage points will have already kicked in.

Borrowers with Norwich & Peterborough Building Society have been stung twice — the lender has levied the quarter point, despite already increasing its SVR by 0.19 percentage points on June 16.

But the impact will be felt most keenly by the legions of borrowers on interest-only loans. On a £200,000 loan, an interest-only borrower would see outgoings rise by £41.67 a month, or just over £500 a year. For a borrower with the same loan, making capital repayments, outgoings would rise by a more modest £28.57 a month, or £342.84 a year.

Melanie Bien, of Savills Private Finance, a mortgage broker, says: “This is especially tough on first-time buyers who have opted for variable interest-only deals to ‘save’ money.”

Even fixed-rate borrowers who thought they were immune from soaring mortgage costs could soon face higher repayments, as swap rates, the money markets that determine fixed-rate lending, have risen in response to the base-rate rise — and in anticipation of another one before the end of the year. Anyone coming to the end of their deal is being urged to snap up the last of the good value, short-term fixes.

Nick Gardner, of Chase de Vere Mortgage Management, another broker, says: “Anyone wanting to fix should do so as soon as possible.”

The lowest two-year fix still available is a 4.49 per cent deal from Alliance & Leicester, with a £999 fee. For remortgagers, Nationwide is offering a rate of 4.89 per cent, with free valuation and legal work and an arrangement fee of £798.

No lender has yet put rates up by more than 0.25 percentage points, but with some SVRs at 6.7 per cent, there is a danger that rates could cross the 7 per cent threshold.

But the overwhelming majority of lenders, including Barclays, which owns the Woolwich brand and HSBC, are yet to announce new rates. Darren Cook, of Moneyfacts, the price comparison service, says: “Lenders are being cautious. The smaller ones are waiting to see what the big players do, but we cannot rule out higher rises sneaking in later.”

There has been little consolation for savers. Only a handful of banks and building societies, including Halifax, Lloyds TSB and National Savings & Investments, have so far put rates up by the full 0.25 per cent, but most of these increases apply only to guaranteed accounts. Banks are yet to increase returns across the board.

Changes on most ISA rates are expected early next week, but most building society customers will have to wait until the end of the month to find out how, or if, returns will be affected. Janet Cane, of Moneyfacts, says: “The rise caught banks by surprise. Many have not decided how to respond.”

Over the past few months, savings rates have been slashed. Barclays, HSBC and Woolwich all cut ISA rates by as much as 0.45 per cent in June.

The Times
August 12th, 2006
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