Halifax just announced that from 1st May 2012 they will be increasing their Standard Variable Rate (SVR) from 3.5% to 3.99%. The SVR is the default rate a lender will apply to your mortgage after the initial deal (for instance fixed for 2 years, or tracker for 3 years etc.) has expired. It is their internal rate, as indicated in the name is it variable and it doesn’t have to follow or track the BBR (Base Rate of the Bank of England), currently 0.5%. The BBR has been the same for nearly three years now, and so has been Halifax’s SVR. They could have changed their SVR at any stage and as many times a they wanted, but just decided now was the right time to do it.
Why the increase?
The reason Halifax invoked was the higher of raising funds which are they lent to borrowers. These funds are typically raised from financial markets and from deposits (from savers): “The increase to the rate reflects the fact that raising money through retail savings and in the wholesale markets is currently very expensive by historical standards.”
What does that mean for borrowers on Halifax’s SVR?
From 1st May, the interest rate used to calculate their monthly payments will jump from 3.5% to 3.99%. For each £100,000 borrowed on an interest only basis, the monthly payments will increase by 14% (there will be an increase too for capital and interest mortgages, but the increase will depend on the outstanding term on the mortgage – i.e. how many years are left before it is fully repaid).
… and for others?
There is a real chance that this move will trigger similar changes with other lenders. In a market as tight and competitive as the mortgage market, each decision by a given lender is always reviewed and analysed by competitors and the recent changes in interest only policies propagated very quickly from a lender to the next over the last few months. It is very likely I think we will see other lenders following in Halifax’s footsteps very soon.
Do I need to do anything?
This announcement is a timely reminder that things do change quickly in the mortgage market and that it is always a good idea to frequently review your mortgage. If you have a mortgage with the Halifax and are currently under their SVR, whether it is by choice or by inertia, it could well be there is no a better solution available, maybe somewhere else, but maybe with Halifax themselves. Halifax have had a streamlined retention policy for a while and they are definitely interested in offering alternative solutions to their existing borrowers. A full mortgage review would be worthwhile, even if your mortgage is not with Halifax, as it could be useful to explore options in case your SVR would increase too! Of course, all cases are different and there will be situation where for some borrowers the most suitable advice would be to stay put, even from 1st May…
At JAM Mortgages, we will be delighted to discuss options with you.
