Wider concerns raised over Skipton's SVR rate
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Skipton Building Society’s decision to remove the ceiling on its SVR and introduce a higher revert rate has raised concerns that the funding model for building societies is unsustainable.
Skipton is temporarily removing the ceiling on its SVR that prev-iously meant borrowers on the rev-ert rate would not pay more than 3% over the Bank of England base rate.
With effect from March 1 the lender is launching a higher SVR at 4.95% that it says is a response to “exceptional market conditions”.
In particular, it cites the low Bank of England base rate and “unusually expensive retail funding relative to mortgage rates driven by unprecedented competition and distorted markets”.
David Cutter, chief executive of Skipton Group, says: “While we understand this change will be unwelcome for those borrowers who will end up paying more as a result, we hope they will under-stand it is a necessary step that is in the best interests of our membership and the society in the long run.”
The move has drawn criticism from consumer groups that argue the decision is unfair and could ultimately damage confidence.
But a spokeswoman from the Building Societies Association says: “There is pressure on societies to increase their SVRs because of such high competition in the sav-ings market between themselves and the government-owned banks. This, along with other pressures such as their Financial Services Compensation Scheme levies, means there is an upward pressure on SVRs.”
Mike Fitzgerald, sales director at Emba Group, says if a major player such as Skipton is having to raise its SVR to stay profitable, other smaller mutuals are likely to be facing the same problem.
He says: “I don’t think Skipton has done anything wrong, it’s just trying to survive. I think there’s a wider question there of how building societies are funded and could the government do anything to improve their situation. The fund-ing model needs to be looked at as a matter of urgency.”
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