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Lenders tweak tracker products and up SVRs after base rate rise

  • 16/12/2021
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Lenders tweak tracker products and up SVRs after base rate rise
Several lenders have changed their tracker products and upped their standard variable rates following the Bank of England’s decision to increase the base rate to 0.25 per cent.


Santander has upped the rates for all its tracker mortgages and increased its standard variable rate (SVR) by 0.15 per cent.

Its follow-on rate will be 3.5 per cent from February. New rates will be communicated to customers ahead of any changes in their monthly repayments. The higher rate will also be used to calculate mortgage repayments from February.

The SVR for The Alliance and Leicester will now be 4.49 per cent from the beginning of February.

Skipton Building Society has temporarily withdrawn its base rate tracker products from sale whilst it recalculates rates. These will be withdrawn from 10pm today.

Existing customers with Skipton Building Society mortgages will see their account’s interest rate change within 14 days.

Halifax has said that customers with mortgages impacted by the change would be given notice of new a monthly payment ahead of changes being applied. They also released a Bank of England base rate calculator to give customers an indication of how much payments could change by.

Nationwide added that it would be increasing its tracker mortgage products from February. The building society will contact customers in January with new interest rates and monthly payments.

Virgin Money said tracker rates for existing mortgage customers would change from February and its SVR was under review.


Borrowers on tracker and variable rates

According to UK Finance figures, there are currently 850,000 people on tracker rates, which is down from 900,000 at the end of last year. Around 26 per cent of mortgages were on variable rates, which is either a SVR or tracker rate.

It said the rate increase would lead to an average of £15.45 per month added to mortgage payments. For those on an SVR, which is around 1.1 million mortgage borrowers, monthly payments would increase by £9.58 on average.

However, it said 74 per cent of mortgages were on a fixed rate and 96 per cent of mortgages advanced since 2019 were fixed.

Sarah Coles, senior personal financial analyst at Hargreaves Lansdown, said there were around two million mortgage borrowers on variable rates, but for them the base rate change would not mean “particularly eye-watering rises”.

She added that the last time a rate rise occurred in 2018, only 28 per cent of banks raised mortgage rates.

However, Coles said if rates go up by one per cent it could increase the typical SVR customer’s monthly payment by £57, which could be a “difficult sum of cash to find,” especially with other living costs rising.

She said: “Borrowers affected by hikes should consider remortgaging as soon as possible. In many cases a fixed rate deal looks like a sensible option, and it’s worth considering a longer fix. Rates had already gone up ahead of the rate rise, but we’re still around historic lows, so now is the time to act.

“If you’re on a fixed rate with less than six months left to run, you can book in a new rate now, so don’t wait for your deal to expire.”

Katie Brain, banking expert at Defaqto, said mortgage interest rates had been “historically low”, especially since the pandemic with the base rate set at 0.1 per cent, and therefore mortgage lenders would act on the change.

She added that as most people were on fixed rate mortgages it would not affect their monthly payments until the deal ended.

Brain said: “This does signal that interest rates are on the rise, so it is always a good idea to review your mortgage via a mortgage adviser, to ensure you are on the best deal available at the time.”


Broker reaction

Chris Sykes, associate director and mortgage consultant at Private Finance, said the base rate change “wasn’t by any stretch of the imagination unforeseen”, adding that banks have been increasing rates for the past few months so they have accounted for short-term rate rises on fixed rates.

He said that tracker rates and discount variable products could be impacted very soon, but the percentage of people on these products was low.

Sykes added: “Often when someone has chosen a tracker it is a conscious decision to gain some flexibility as often these products have no early redemption charges and a mortgagee might want this as they are expecting a liquidity event or to sell.

“It is unlikely anyone has taken a tracker rate since the base rate has been 0.1 per cent with the expectation rates can go down any further, rate rises back from 0.1 per cent have always been on the cards as this was somewhat of an emergency measure.”

David Hollingworth, associate director of communications at L&C Mortgages, said a base rate change would often “bring a rethink” for lenders on tracker product pricing and informing customers of the impact of a rate hike.

He said: “We will see some withdrawal of trackers likely before lenders seek to relaunch in coming days and weeks, whilst others will simply apply the new higher base rate to existing tracker margins. Trackers haven’t been especially popular with fixed deals making up the lion’s share of customer product preference.

“With the first rate rise now known but others on the cards that trend isn’t likely to shift toward trackers. However the fact that trackers are more likely to be free of early repayment charges means that they can certainly continue to have a place for some borrowers.”

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