Cheap variable rates starting to bite the dust

Published 02nd Jun 2010

Banks and building societies are buckling under the financial pressure of cheap standard variable rates.

Last week, Britain's biggest mortgage lender, Lloyds Banking Group, scrapped a promise to charge customers on its SVR no more than 2 percentage points above Bank of England base rate.

From June 1, anyone taking out a loan with Lloyds TSB or Cheltenham & Gloucester will pay 3.99 pc when they come to the end of their fixed or tracker deal.

Since the shortest fixed-rate they offer is for two years, the earliest new borrowers will go onto the higher SVR is June 2012. Existing mortgage customers will still get the current SVR of 2.5pc.

This means homebuyers with a £150,000 25-year repayment mortgage will pay £790.93 a month instead of £672.93 - £118 more a month.

Borrowers sitting on their mortgage lenders' rate have mostly benefited during the credit crunch, with the average SVR at 4.42 pc undercutting many fixed-rate deals.

Low SVRs have been costing lenders dearly. Nationwide estimates its old guarantee not to raise its SVR by more than 2 percentage points above base rate was costing it £450 million a year.

It also raised its SVR to 3.99 pc a year ago for new customers, meaning those coming off fixed-term deals will feel the effects in six months' time.

However, not every lender has been hiking its SVR. Alliance & Leicester is lowering its SVR to 4.24 pc (base rate plus 3.74 pc) for new borrowers, bringing it in line with its sister bank, Santander.

Source: ' Daily Mail '

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