With all the major banks and mortgage lenders increasing the standard variable rate on their mortgage products, borrowers are facing even more difficulties in finding the mortgage repayment and the situation only looks to get worse. Thousands of people will be faced with the decision of whether to switch mortgage lenders and face early redemption fees and further admin fees or stick with their current provider but pay more in repayments each month
For some it could mean they simply cannot afford to pay the mortgage each month and could face repossession and losing their home.
Earlier this year , Halifax, which as part of the Lloyds group, is the biggest mortgage provider in the UK, raised its standard variable rate by 0.5%, taking it from 3.49% to 3.99%. Other banks such as the Royal bank of Scotland and the Clydesdale Bank followed suit. And now Santander has announced it will increase its variable rate mortgage from 4.24% to 4.74% as from October 2012. For the average person this could mean having to pay out an additional £44 a month. Anyone that took out a mortgage with Abbey or Bradford and Bingley Building Society will also be affected as these two institutions are now also owned and operated by Santander.
Recent cuts in mortgage rates had taken fixed rate mortgages repayment amounts to a new low for those with a decent amount of equity in their home or who could afford a fairly large deposit. However, the move by a number of lenders to increase their variable rates, even though the Bank of England base rate has remained unchanged for over 3 years, shows that people should not get complacent about their mortgage and that rates can rise quickly and without much warning.
The move by the banks to keep the cost of fixed rate mortgages low, while increasing variable rate mortgage rates is a planned move to try and push more borrowers onto fixed rate mortgages, so that the banks loan books show a better and more certain return.Borrowers affected by these rate rises need to consider carefully whether it is worth switching mortgage providers. Whilst the Santander variable rate is now around 0.5% above the market average, it is still well below some lenders who are charging up to 5.99%.
It is a good idea for borrowers to check with an independent mortgage advisor and see if they should switch to a fixed rate product or a tracker mortgage. However, to benefit from the low cost of fixed rate mortgages you will need about 40% equity in your house so anyone with only a small amount of equity or first time buyers will struggle to swap to a different mortgage product. And borrowers could be hit with early redemption charges, exit fees, legal costs, valuation fees and administration fees adding up to a lot of money. It might just not be worth it. Many will have no option but to try and pay the increased mortgage repayments.