Co-Operative bank has been slammed by brokers for raising its SVR by 0.45% from 5.34% to 5.79%.
But the lender says that such a large rise was necessary to allow it to offer a better range of discounted products to attract new borrowers.
Paul Lawler, spokesman for the Co-Op says: “We're stuck between the devil and the deep blue sea. The companies that are offering bigger discounts also have SVRs that are a lot higher. We have repositioned but our overall package is still a lot better than the rest of the market.”
Co-Op has just released a two-year fixed rate mortgage at 4.79% until June 2006 and a two-year tracker deal offering a 0.07% discount on Bank base rate.
The two deals are available for house purchase and for remortgaging with an LTV of 95%.
However the reaction from brokers to such a big rate hike has been one of shock, with the main criticism being that while it allows the Co-Op to offer better packages for new customers, existing ones are left worse off.
Mike Fry, director of Halton Insurance Service, says: “It's an insult really. If the Bank of England puts the rate up by 0.25% and then the Co-Op raises it 0.45%, you wouldn't use it out of principle. OK, the Co-Op might be pre-empting the next rise but what happens when another one comes? I can't see why anyone would want to place business with the Co-Op.”