Norwich & Peterborough raises its mortgage costs

Published 04th Feb 2010

Building society becomes latest lender to raise its SVR in the face of heightened competition in the savings market


Norwich & Peterborough building society has become the latest lender to increase its standard variable rate (SVR), raising the cost of borrowing for thousands of customers.

Although the Bank of England base rate has remained at an historically low 0.5% since March last year, N&P's SVR has been increased to 5.35% from 4.85%, a move that will add £30 a month to a £100,000 repayment mortgage.

Around 5,800 N&P borrowers are currently paying the SVR, while a further 1,700 are on discount mortgage deals linked to it. The society said its borrowers typically had loans of about £60,000 so would see bills rise by £18 a month on a repayment loan and £25 on an interest-only deal.

It added that the majority of customers had mortgages on an "annual review" basis and would not see repayments increase until the start of next year, although they will be accruing interest at the new rate from yesterday.

The society, which has 388,434 savers and 52,968 mortgage customers, said that although it was well funded and had a low incidence of arrears among its customers, competitive pressures had forced it to increase rates.

Richard Barker, the society's product manager for mortgages, said it had faced fierce competition from banks who, unable to raise funds through the wholesale market since the start of the credit crunch, had moved aggressively into savings.

"While in absolute terms savings rates seem to be low, relative to the base rate they are actually quite high," he said. "Our margins have been crushed – that's really the rationale behind the move."

Barker said N&P itself had struggled to raise funds through the wholesale market and, like other societies, had been disproportionately hit by payments to the Financial Services Compensation Scheme to bail out savers in the Icelandic banks.

He said the society had considered raising rates for new customers only, but the low level of lending meant this would not be enough to make a difference.

"This is a change we are making reluctantly, but we are forced to make it for the long-term good of the society," he said. "We certainly have no plans at all for any further increases."

N&P's line is similar to that of Skipton building society, which last month announced it was breaking its promise to keep its SVR within 3% of the Bank of England base rate.

Several smaller building societies including Kent Reliance and Cambridge have also raised their SVRs in recent weeks. The moves could see an increase in remortgaging activity after months in which the number of people switching lender has been falling.

Separately, it has emerged that borrowers on their lenders' SVRs are having to switch rates if they decide to move home. This morning the Daily Mail reported that Halifax was refusing to allow borrowers on its SVR to stay on the rate if they decide to move home.

Like Skipton it had made a commitment to track changes in the base rate, meaning customers on the SVR are currently paying a rate of 3.5%. However, a spokeswoman for the lender said this was in line with other lenders' treatment of borrowers on SVRs, and that they were being offered new deals, some of them with better rates.

Currently the lender is offering a tracker rate of 2.49% for borrowers with at least 40% equity in their homes, although many with smaller deposits will struggle to find a rate as low as the SVR.

"SVR is not a product; SVR has never been a product," the spokeswoman said, and as such is not portable.

Although customers on SVRs are seeing prices rise, elsewhere lenders are cutting the cost of new mortgage deals and increasing the choice available to would-be borrowers. This week, Santander launched a two-year tracker at 2.49% for loans of up to 70% loan-to-value, while Leeds building society launched a two-year mortgage fixed at 3.45% for borrowers with at least 40% equity.

Source: ' Guardian '

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