Halifax could deliver shock mortgage rate hike soon for 1m SVR borrowers

Published 29th Feb 2012

Homeowners sat on Halifax standard variable rate mortgages at 3.5 per cent could be in for a rude shock, as the lender has paved the way to hike their monthly payments, an expert has warned.

The mortgage lending giant has an estimated 1million borrowers paying its standard variable rate, many of whom will have reasoned that they are safe from having their rate jump as long as the UK base rate remains at its record 0.5 per cent low.

But Halifax’s recent move to lift a SVR cap - a special deal that only affects 40,000 of its borrowers - could actually mean an imminent rate rise of almost 0.5 per cent for all, says Ray Boulger, of mortgage broker John Charcol.

He said: ‘There would be little point in changing the cap if Halifax didn’t want to increase rates in the very near future.’

A rise from 3.5 per cent to 3.99 per cent would add £735 a year to the cost of a £150,000 interest-only mortgage.

Mr Boulger argues that Halifax has opened the door to a hike, by writing to 40,000 of its mortgage borrowers who benefit from the cap, as they are on a combination of a loan with an early repayment charge and the SVR.

It is allowed to do this as under mortgage terms and conditions, the cap can be raised with one month's notice. Ostensibly lifting it from 3 per cent to 3.75 per cent above base rate only affects a relatively small number.

But it gives Halifax the wriggle room needed to impose a new higher SVR across all borrowers – one that is highly likely to be set at same level as the 3.99% Homeowner Variable Rate it recently brought in for new mortgages.

Mr Boulger said: ‘Halifax has put the cap high enough to bring the SVR up to 3.99%. The only logical thing to do would be to align both rates.’

And while Halifax has not confirmed any plans to raise its SVR, a spokeswoman told This is Money that raising the cap 'gives us the flexibility for any future review'.



Interest-only borrowers hit hardest...again

The worst hit borrowers would be those on interest-only mortgages, as rate rises lift their monthly payments more.

A rise to 3.99 per cent would mean those with a £150,000 home loan would see monthly payments rise by just over £61 – adding an extra £735 a year to their bill.
Why raise the SVR?

Raising the SVR for 1m borrowers would pull in a substantial extra sum for Halifax, but it would also reflect the rise in money market variable rate lending costs incurred by banks over the past year.

Three-month LIBOR has risen dramatically from about 0.8 per cent in August 2011 to 1.06 per cent currently and banks are also being forced to hold more capital reserves to safeguard against collapse.

And thanks to the ongoing crackdown on interest-only mortgages by lenders, which involves much tougher conditions on who can take them out, those borrowers could find themselves unable to remortgage elsewhere and thus with no choice but to accept a hike.

The new Halifax cap would allow the bank to raise its SVR as high as 4.25 per cent.

However, it is unlikely to go higher than the 3.99% rate, as this would pull it to the same level as the Homeowner Variable Rate and put it in line with other major lenders, the only one of whom with an SVR above 4 per cent is Santander at 4.24%.

Borrowers with Lloyds TSB and Cheltenham & Gloucester, Halifax's stablemates in the giant Lloyds Banking Group, will not be affected by a hike, as they have caps that guarantee their standard variable rate will not go more than 2 per cent above base rate.

Letters have been sent out to the 40,000 borrowers who benefit from the cap and the increase from 3.5% to 4.25% comes into force in April. Those affected will have taken out deals between 2001 and 2007, when the cap was in mortgage conditions.

Source: ' ThisIsMoney '

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