The UK’s second biggest mortgage lender, Santander, has announced it is increasing its Standard Variable Rate (SVR) by 0.5% to 4.74% in October.
The SVR is the default rate of interest for customers who are not on a fixed rate or tracker deal. Customers who pay the SVR on their Santander mortgage will on average see their costs increase by £26 a month or £312 a year for a £100,000 mortgage. Hundreds of thousands of customers will be affected by the change.
The bank is also increasing its SVR cap margin, the maximum above the Bank of England base rate that it can charge, from 3.75% to 4.99%.
Mortgage rate increases despite low base rate
The changes come despite the Bank of England’s base rate remaining at a historic low of 0.5%, the rate it has been at since March 2009. But Santander has blamed the increasing costs of funding mortgages and of running a bank in the UK in general for their decision.
In May, other lenders including Halifax and the Co-operative Bank also increased their mortgage rates by 0.5%. Which? research at the time showed that 70% of mortgage holders were concerned about increases and 14% are already struggling with their repayments.
Mortgage prisoners trapped on SVR
With SVRs creeping up and lenders tightening up criteria on who they will lend to, there are concerns that many people are trapped in mortgages they are struggling to repay, unable to switch to a better deal. With most of the best fixed-rate deals on the market only available to people with lower loan-to-value ratios these deals are out of the reach of millions of people.
Peter Vicary-Smith, Which? chief executive said: ‘This latest increase in mortgage interest rates is another blow to struggling households, many of whom are trapped on Standard Variable Rates. The banks are profiting from these mortgage prisoners while giving better deals to new customers with low loan-to-value ratios.
‘Over 1.2 million people have already seen rises in their SVR mortgage which will cost them over £300 million in the next year. The Government needs to explain why thousands of homeowners are still being hit by increases when the banks are supposed to be passing on cheaper credit through the Funding for Lending scheme.’
- How to get the best mortgage deal – our guide to finding the best value mortgage
- Mortgage terms glossary – the lowdown on what terms like SVR and LTV mean
- Repossession and how to avoid it – what to do if you’re struggling with your mortgage