Consumer watchdog Which? has launched a stinging attack on lenders who have not passed on cuts in base rate to borrowers on standard variable rate mortgages.
It says 95% have not passed on cuts and that one, lender, KRBS is currently charging more than 12 times the Bank of England base rate.
It says that with many borrowers trapped on SVR mortgages, any rate increase could leave thousands of households in financial difficulty.
But the Council of Mortgage Lenders has hit back, saying that base rate has little to do with the cost to lenders of raising money for funding.
Which? says a 1% increase in the base rate would add over £50 to the monthly repayments of someone with a £100,000 20-year mortgage.
It says its research shows that seven in ten people are worried about mortgage rates and two in ten fear repossession.
More than one-fifth of lenders have increased their SVR since the base rate hit an all-time low of 0.5% in March 2009.
Cheltenham & Gloucester and Lloyds TSB Scotland were the only lenders who are part of the four biggest banking groups to pass on the full cut.
At 6.08%, KRBS has the highest SVR on the market – more than 12 times the base rate.
The five other direct lenders with the highest SVRs are all building societies. They are Newcastle, Nottingham and Shepshed, all with an SVR of 5.99%, and Darlington, with an SVR of 5.95%.
The average SVR is now 3.48% above the base rate, compared with 1.95% in September 2008.
Which? chief executive Peter Vicary-Smith said: “Millions of people are on variable rate mortgage deals and for many a rate hike could mean they’re facing real financial difficulties.
“Banks have enjoyed increased margins on mortgages for the last few years, and when the base rate rises again, few lenders will be able to justify passing on the full amount to their SVR customers.”
But the Council of Mortgage Lenders said that because mortgage markets have changed fundamentally as a result of the financial crisis, base rate is ‘no proxy’ for the cost to lenders of raising funding.
The CML said that since base rate reached its historical low point in March 2009, lenders have been affected by new requirements to hold capital and liquidity, and by the only partial recovery of wholesale funding markets.
Pressure to extend greater forbearance to borrowers in difficulties is another factor.
CML director general Michael Coogan said: “Lending rates are fundamentally driven by the cost of funds, not the base rate, although the two were more closely correlated before 2008.
“But this apparent historical relationship has been blown apart by the move to an unprecedented low base rate since March 2009.
“Since the onset of the financial crisis, firms have been operating in lending and funding markets that have changed dramatically, and we have been reinforcing the message that base rate is not a proxy for the funding costs for lenders.”
Comments
I'm pretty sure that most people's mortgages have a clause in it somewhere that says that the mortgage interest rate will fluctuate up or down in line with the BOE base rate!
It's okay them saying that "mortgage markets have changed fundamentally as a result of the financial crisis, base rate is ‘no proxy’ for the cost to lenders of raising funding." when it suits them with historical BOE rate lows right now, but when the BOE rate goes up again, they will be reminding borrowers of the cause in the mortgage illustration and that they apologise for the inconvenience caused in raising their interest rates!!!!
They want it both ways!