Lenders expected to increase mortgage rates

Increasing numbers of lenders are expected to hike their standard variable rate (SVR) mortgages despite interest rates being kept on hold, commentators said today.

Eight mortgage lenders have so far increased their SVR for at least some customers since the Bank of England base rate was last changed in March 2009, and others are expected to follow suit.

Lenders' margins have been coming under increasing pressure due to the historically low base rate, which has meant many borrowers are better off staying on their standard variable rates when their existing mortgage comes to an end, rather than switching to a new deal.

Historically, SVRs were typically around 2% higher than the tracker and fixed rate deals people could switch to, and most borrowers stayed on them for only as long as it took them to arrange a new mortgage.

But many of the deals are now below the rates people would qualify for if they remortgaged, particularly for those with only small equity stakes in their properties, after they followed the base rate down.

Some of the SVRs pledge that they will only ever be a set level above the base rate, leaving some rates, such as the ones offered by Nationwide and Cheltenham & Gloucester, as low as 2.5%.

As rising numbers of borrowers stay on the SVR when their existing deal expires, banks and building societies have found an increasingly large proportion of their mortgage book is made up of people on the rate.

Skipton Building Society, which pledges that its SVR will never be more than 3% above the base rate, recently said 29,000 of its 100,000 mortgage customers were on its SVR, with a further 35,000 due to revert to it in the near future.

Last month it announced that it was invoking a right that enables it to remove the ceiling capping the rate at 3% above base rate due to "exceptional circumstances", and it is hiking the SVR by 1.45% to 4.95% from March.

Darren Cook, spokesman for Moneyfacts.co.uk, said: "The momentum to increase SVRs appears to be gathering pace and now that a few have taken the step, it is highly possible others will follow."

But he said there were also signs that competition was returning to the mortgage market as lenders looked to attract those borrowers who were remortgaging.

The average cost of fixed rate and tracker deals has fallen steadily since the beginning of the year, with a flurry of lenders launching best buy rates this week.

More than 300 new mortgage products have also been launched since the beginning of January, leading to a 26% jump in the number of different deals available for people with only a 10% deposit.

Mr Cook said: "Previously, there has been little or no motivation for people to remortgage, but as standard variable rates continue to rise, many will be forced to find a better deal elsewhere and lenders may now be wise to this.""