A study by consumer group Which? found 95% of standard variable rate (SVR) mortgage lenders had not passed on cuts to the main interest rate, which now stands at an all-time low of 0.5% having been at 5% in October 2008.
According to the research, the average SVR is now almost 3.5% above the base rate, with some lenders’ SVRs at more than 6%.
Which? CEO 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 the full amount onto their SVR customers.”
CML director general Michael Coogan said that while lending rates are fundamentally driven by the cost of funds and not the base rate, the relationship has been blown apart by the move to an unprecedented low base rate since March 2009.
He said: “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.
“For borrowers anticipating difficulty, however, the message remains unchanged. They should speak to their lender as soon as possible if they are struggling to meet their repayments, and lenders are committed to helping them wherever they can do so.”
The Which? study found more than a fifth of lenders have increased their SVR since the base rate was cut to 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.
