Mortgage borrowers with building societies are getting a raw deal after two more mutuals raised their standard variable rates (SVR) last week, despite Bank rate remaining at 0.5% for 11 consecutive months.
Norwich & Peterborough raised its SVR — the rate customers are moved to when they come to the end of a mortgage deal — by 0.5 percentage points to 5.35%, while Surrey-based Holmesdale increased theirs by 0.35 points to 4.89%.
They followed Skipton building society’s announcement that it would increase its rate from 3.5% to 4.95% next month.
Mansfield, Marsden, Kent Reliance and Cambridge building societies have also increased rates recently. There have been 12 rate rises in the past two months alone, according to largemortgageloans.com, the broker.
Building societies fase cash crisis
The moves come as building societies face a growing cash crisis. Savers withdrew £7.6 billion more from building society accounts than they deposited in 2009, the Building Societies Association said last week. This is the largest amount in any year since records began in 1955, prompting mutuals, which rely on savings to fund mortgages, to increase SVRs.
Ian Gray, of Largemortgageloans, said: “Societies face a cash crisis but members should not have to bear the brunt of it.”
Thousands of people have remained on their lender’s SVR when they have come to the end of a fixed or tracker mortgage, as interest rates have stayed at record lows.
SVRs are also attractive if you have only a small amount of equity
in your home as lenders generally reserve their best new deals for borrowers with a deposit of at least 40%. However, research by Moneysupermarket, the comparison firm, found 85% of SVRs are now more expensive than the cheapest two-year fixed-rate mortgage deals.
I am with a building society, should I be worried?
Ray Boulger of John Charcol, the broker, said building societies not actively lending and with low SVRs were the most likely to increase rates.
This might include Barnsley and Loughborough building societies whose SVRs are 4.99%; Cumberland at 4.48% and Stafford Railway at 3.49%.
So what should I do?
It depends on how much equity you have in your property and how high your provider’s SVR is. As a general rule, Boulger said those with more than 20% and an SVR of more than 3.5% should consider switching.
Of all the building societies, only Nationwide, Derbyshire and Stafford now have an SVR below 3.5%, so it is generally worth considering remortgaging — particularly if you have a small deposit.
What about other lenders?
The lowest SVR is from Cheltenham & Gloucester (C&G), a subsidiary of Lloyds Banking Group, at 2.5%. It guarantees not to be more than two percentage points above Bank rate.
Nationwide also offers the two-point guarantee but this applies only if you signed up to a mortgage deal before the end of April 2009. Those who signed up after this will revert to an SVR of 3.99% and there is no rate guarantee.
Halifax’s SVR is relatively low at 3.5%, but there is no rate guarantee. Intelligent Finance and Bristol & West, which no longer accept new customers, also have low SVRs at 2.5% and 2.99% respectively.
When should I stay on my SVR?
If you are on an SVR of 3.5% or less and have only a small amount of equity in your home, you will almost certainly be better off sticking where you are.
For example, if you are on the Halifax SVR of 3.5% and have a 10% deposit, the best two-year fixed rate would be from Nationwide with a rate of 5.98% and £495 fee, while the best tracker would be from NatWest with a 5.49% rate (4.99 percentage points over Bank rate) and a £999 fee.
A £200,000 interest-only deal would cost £583 a month on the Halifax SVR, £997 a month on Nationwide’s fix and £915 a month on a NatWest tracker.
If you have a larger deposit, for example 30%, some lifetime tracker deals start to look attractive. You could go for Woolwich at Bank rate plus 2.13 percentage points, giving a current rate of 2.63% with a £999 fee. You would pay £438 a month on a £200,000 interest-only mortgage, saving £145 a month compared with the Halifax SVR.
If you prefer to fix your rate, Abbey is offering a two-year deal at 3.44% with a £995 fee. It will cost £407 a month, saving you £176 a month compared with the Halifax SVR.
For those with higher SVRs, it may still be worth staying put if you have a small deposit. For example, if you are with Principality with an SVR of 4.99%, but had only a 10% deposit, one of the best deals is a two-year fix from Yorkshire Bank. It has a rate of 5.99% and a £999 fee. You would pay £998 a month with this deal against £831 with Principality.
Can I ‘port’ my SVR?
Porting is where you take your existing deal with you when you move. Most providers allow you to do this and borrow more, say if you are moving to a more expensive property.
However, lenders with low SVRs are increasingly reluctant to allow customers to keep their rates. Halifax, for example, will not allow customers to port their SVR. It means customers have to switch providers or go for one of its other deals. It does, however, offer some competitive rates to existing customers.
Nationwide and C&G say they will allow customers to port their SVR but if you want to borrow more you will have to take out another deal.
Should I fix or track?
Most economists expect Bank rate to remain on hold at 0.5% until October, then to double to 1% by the end of the year, rising to 2.5% in the second half of 2011, said a Reuters poll.
Based on this assumption, you would be better off fixing for five years if you have less than a 40% deposit, according to analysis by L&C, the broker. If you have 40% or more, you would be better off in the long run with HSBC’s lifetime tracker at 2.49%.