SVR increases gain momentum

6 January 2010 | By Natalie Thomas

Eight lenders have increased their SVR while the Bank of England base rate has been held at 0.5%, according to Moneyfacts.

The latest lender to increase its SVR is Marsden Building Society, which increased its SVR by 0.46% to 5.95% on January 1.

Mansfield Building Society is set to follow on January 11 when it pushes its SVR up by 0.35% to 5.59%.

Chesham Building Society emerged as the lender with the highest SVR at 6.45%, while Cheltenham & Gloucester, Cheshire Building Society and Derbyshire Building Society came out as having the lowest SVRs at 2.50%.

Nationwide also operates an SVR of 2.50% on deals taken out before April 29 last year.

Mortgages taken out after this date revert to a revised Standard Mortgage Rate of 3.99%.

Darren Cook, spokesman at Moneyfacts.co.uk, says: “By increasing the SVR lenders are actively trying to encourage borrowers to find a new mortgage deal, but many are unlikely to act until a significant base rate increase is a real possibility.

“In recent months providers have been forced to increase savings rates in order to raise funding in a competitive market.

“Increasing the SVR may be the only way some can offset this cost.

“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.”

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Readers' comments (14)

Anonymous | 6 Jan 2010 1:55 pm
Good news for mortgage advisors who deal in remortgages. Bad news for anyone on a variable rate thats not linked to Bank Base Rate.
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Tim Robinson | 6 Jan 2010 1:55 pm
I do like it when what we have been telling clients for sometime comes to fruition.

Watch the fixed rates move up towards the end of Q1.

Buy now is what I say.
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Anonymous | 6 Jan 2010 2:02 pm
Once again it will be the people who need the most help who will suffer with these svr increases. If borrowers cannot remortgage elsewhere to benefit from lower interest rates (whether that be because of falling house prices, lower wages etc) this just adds further pressures.
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Anonymous | 6 Jan 2010 2:34 pm
The ethics/benefits of mutual building societies are long gone. Making profits seems to be more important to them now a days.
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Anonymous | 6 Jan 2010 3:01 pm
Hardly TCF!!
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Anonymous | 6 Jan 2010 3:05 pm
It will be interesting to see what the state backed banks do...I guess they will not change until after the election?

My Northern Rock 98% mortgage leaves me entirely in their hands.
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Anonymous | 6 Jan 2010 4:03 pm
If building societies need to increase rates to attract funds then it is inevitable that rates to borrowers will also increase.

Investment rates have been too low and an improvement in returns is welcome - borrowing rates are still low.
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Anonymous | 7 Jan 2010 2:03 pm
Lenders increasing SVR do so at their own risk. A fairly substantial number of people out there have no chance of remortgaging in the near future, mainly due to LTV. Therefore lenders increasing SVR's are guaranteed to increase their arrears book. Not to mention reposessions.
Will be interesting to watch how Northern Rock in particular react in the coming months.
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Ketan Yadav - Avenue & Co Private Finance | 7 Jan 2010 4:39 pm
Building Societies are showing their perseverence to maximise profits and with BBR at 0.5%, these sorts of SVRs at almost 6% are shocking. They are aware that BBR will remain at below 2% for possible another 5 yrs according to an article published today by Roger Bootle of Capital Economics.

The problem is that for many, the fall in property values and tighter lending criteria will prohibit many being able to remortgage elsewhere - you need at least 25% equity to get the rates below 4%.

This will lead to more affordability problems for hundreds of thousands in 2010, on top of unemployment and a weak pound. This could lead to a a 'double dip recession' for the UK.
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Anonymous | 8 Jan 2010 11:18 am
I’m sorry to say but some of these comments show a remarkable degree of ignorance from some of the contributors. I also find it amazing that even now some brokers are trying to tie lending rates to a thoroughly discredited BBR. I can assure all in the broking community that if lenders could get funding at anything approaching BBR there is little doubt that mortgage rates would drop, although the idiocy of the original Northern Rock business model would be bound to have an impact on any lender who tried to fund to much lending via the wholesale market.

What needs to be understood is that retail funding can only be obtained if any institution, and primarily Building Societies, are offering competitive rates. The cost of retail funds is substantial with some lenders paying up to 3.5% for their money. On top of this the FSA is now expecting lenders to hold far more liquidity and to place it into Gilts, which of course are linked to BBR. So lenders borrow the money at 3.5% and have to invest a great chunk of it at less than 0.50%. There are still management costs to meet, the not inconsequential cost of the Financial Services Compensation Scheme, (let alone the extra ‘red-tape’ costs required to provide our beloved regulator with more and more information) and, as is common in a recession, there has to be greater provision for bad debts, whether incurred or not. There is then the need to build a capital base that keeps the FSA happy, and here it has to be remembered that for Building Societies the primary way to do this is from profits. Societies can’t just make a rights issue to obtain Tier 1 capital. To put it simply no Building Society profits = reduced tier 1 capital = reduced lending and I’m sure the broker community would not like to see most Societies having to step out of the market at the present time.

So please wake up and remember that rates are still historically low and that on average a Building Society needs in excess of six investors for every one borrower. It doesn’t need a great mathematician to work out that Building Societies either up their SVRs or you go out of business
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