The lender admitted it could cause some short-term confusion but that results from consumer research had led to the decision.
Instead of reverting to the SVR at the end of the fixed or tracker period, loans taken out from 23 January will move on to the follow-on rate.
The new follow-on rate (FoR) tracks at 3.25% above the Bank of England Base Rate – giving a current value of 3.75%. This is almost 1% lower than the lender’s current SVR.
Santander’s current SVR is currently set at 4.74% – it does not track to the base rate, but is instead controlled directly by the lender.
It has no plans to move people over from the SVR to the FoR automatically.
Better consumer understanding
Santander head of business development Graham Sellar told Mortgage Solutions that customers had said they understood how the new rate worked better than the existing Standard Variable Rate.
“There’s an awful lot of customers who had not seen a base rate rise in November and we found SVR was quite confusing for customers as not all lenders pass on any increase or decrease in base rate,” he said.
Sellar also downplayed the difference between the rates. “There are times when SVRs are higher than bank base rate and times when its lower. The world could be very different in 2020 when the first people start maturing on to this new rate, but we think it’s a fairer revert rate,” he said.
He added: “We had the Alliance and Leicester SVR as well for a number of years and other banks and building societies have more too. It’s confusing and not completely straightforward, but we think in the long term things will be clearer for customers.”
The last change to the Bank of England Base Rate occurred in November with a 0.25% increase, and a further two increases of similar amounts have already been projected by the Bank of England over the next two years.
In 2002, a number of mortgage lenders, including Nationwide Building Society and Halifax, attempted to introduce so-called ‘Base Mortgage Rates’ lower than their SVRs for certain groups of customers. A combination of Ombudsman’s orders and bad publicity led to the lenders compensating many thousands of borrowers to the tune of millions of pounds.