The announcement of a rise in the Standard Variable rate of interest charged by the Halifax came as something of a surprise, but provides a salutary reminder of just how things can change.
The rise from 3.5% to 3.99%, effective from May 1, is estimated to increase the cost of their average borrower’s mortgage by some £16 per month, and although this will be unwelcome for those affected, the new rate of 3.99% is still one of the lowest in the market.
Many people will be asking why this has come about now when the Bank Base Rate (BBR) remains at an all-time low level and commentators have once again suggested that we will see no rise in BBR until possibly 2014.
When the base rate was slashed in the final quarter of 2008 and first quarter 2009, no-one realistically expected rates to remain at these all-time low levels for any length of time!
The reality is that such has been the economic impact of the financial crisis and the ensuing global recession.
Central banks around the world and in particular the Eurozone, the US and the UK have been forced to hold down rates and provide massive financial stimulus to support their economies, to prevent mass unemployment and a collapse in living standards and spending power.
Principal beneficiaries of the slashing of interest rates have been the vast majority of mortgage borrowers. Four years ago the typical SVR in the market was circa 7%, whereas today it is around 4.1%. This marked reduction in the cost of mortgages has enabled many borrowers to weather the financial downturn far better than if no central bank intervention had taken place.
Lenders like Halifax have been faced with increased costs of funding both in wholesale markets and in the rates they are having to pay depositors to attract savings, although everyone recognises that here too rates on offer to savers are but a fraction of where they were three or four years ago.
Furthermore, these lenders have large retail distribution costs with extensive and very expensive branch networks. All lenders are under pressure to maintain their margins and it appears that we have reached the point where the UK’s largest lender is making the first move in starting what will be a slow but inevitable upward movement.
For those borrowers who are on SVR, dependent upon their loan to value, some will be able to take advantage of an internal product transfer often providing a fixed rate for a defined benefit period, which may result in them incurring little or no increase in monthly outgoings.
Others may wish to take a product transfer now to guard against any future increase or look at other remortgage opportunities available in the wider market.
Others, due to their level of equity, employment or personal credit circumstance, will not benefit in the short term from a product transfer or will be unable to remortgage elsewhere.
They will have to stay put and incur this increase plus any future increase that the lender chooses to levy on them until such time as property prices rise and they can consider alternatives.
* Brian Murphy is Head of Lending at Mortgage Advice Bureau
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Comments
You did some expressions may do some beneficiary of slashing interest rates to our bank communities.
Great blog Brian! Keep up the good work!
As a Halifax borrower, I can't say I am happy with the increase, but it's still better than the nearly 6% rate we fixed on when we first took out the loan.