Mortgage giant Halifax raises rates, as borrowers face a leap in costs despite the BoE's base rate freeze

Published 11th May 2012

Halifax, Britain’s biggest mortgage lender, yesterday increased its rates, despite the Bank of England keeping the base rate at 0.5 per cent for the 38th month in a row.

It is the latest in a round of rate hikes that has seen the cost of the best new mortgages rise substantially in just a few months, with around 0.5 per cent added to top deals.

The bank increased mortgage rates by up to 0.3 percentage points, adding £27 a month to a typical £150,000 loan.

In March, the lowest five-year fixed rate mortgage was being offered to borrowers with a 30 per cent deposit at 3.19 per cent by Chelsea BS. That rate now stands at 3.79 per cent, adding £50 a month, or £600 a year, to the cost of a £150,000 repayment mortgage over 25 years.

Yorkshire, the second biggest building society which includes Chelsea BS within its group, is expected to announce mortgage increases similar to Halifax's today.

In recent days a number of other lenders have hiked their rates, including First Direct, Norwich & Peterborough and Nottingham.

The move upwards comes as banks and building societies look to ration their limited mortgage funds available and profit from a rush to remortgage by homeowners spooked by lenders raising mortgage standard variable rates (SVRs).

A flurry of hikes have hit SVRs, which are the default rates borrowers typically move on to when a fixed or tracker deal period ends. Halifax raised its SVR from 3.5 per cent to 3.99 per cent for 850,000 borrowers from the start of May, while RBS, Bank of Ireland, Co-op and Yorkshire and Clydesdale Banks also lifted theirs.

Savers hoping for a similar rise in the rates they are paid are likely to be disappointed, however.

In fact, yesterday the country’s largest building society, Nationwide, was among those to reduce leading savings account rates. Virgin Money, AA Savings and Sainsbury's Bank have also trimmed rates.

IHS Global Insight economist Howard Archer said: ‘The turmoil in the eurozone means banks are under huge funding pressures and are desperately trying to protect their profit margins.

‘So homebuyers – who are normally seen as the winners of low interest rates – are under attack as well as savers.’


The number of mortgages given to borrowers with a deposit of 15 per cent or less fell to 5,309 in April, well below the average of 6,229 in the first three months of the year, according to e.surv, the chartered surveyors.

Yesterday, the Bank of England announced the base rate would stay at its current record low of 0.5 per cent. It has been at this level since March 2009.

But while this has stayed the same, economic and political turmoil in Greece, France and Spain is pushing up the cost of borrowing for banks in the UK, as they are finding it harder to borrow on the money markets and so must rely more on the pricier option of attracting savers' cash to fund mortgage lending.

Lenders are also facing higher costs on their mortgage books as the financial authorities tighten regulations.

Crucially, however, with a lack of real competition in the mortgage market, they are able to maintain healthy profit margins and squeeze borrowers to cover their extra costs.

Mortgage brokers say that once big banks start to increase mortgage rates, others follow suit.

Aaron Strutt, a mortgage expert at broker Trinity Financial, said: ‘Some lenders have become inundated with applications. This has led to processing delays and rate hikes.’

The number of mortgages given to borrowers with a deposit of 15 per cent or less fell to 5,309 in April, well below the average of 6,229 in the first three months of the year, according to e.surv, the chartered surveyors.

Richard Sexton, director at e.surv, said: ‘Up until early spring banks did a good job of coping with increasing funding costs. But we’ve reached a tipping point now.

‘Banks are concerned about their exposure to debt-riddled European countries, and the precarious state of borrower finances.’

Source: ' ThisIsMoney '

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