SVR warning as Halifax raises mortgage rates

Halifax signChris Ison/PA Archive/Press Association Images

Halifax, the biggest mortgage lender in the UK, has raised its standard variable rate by 0.3 percentage points - ironically it chose to do this at the point when the Bank of England said it would keep rates at a record low of 0.5% for the 38th month running.

This will be painful for Halifax customers, but why is this happening, and what does it mean for borrowers generally?


The move has been widely predicted since the end of February, when Halifax wrote to those customers on a capped SVR to give them a month's notice that the SVR would rise. Ray Boulger, an adviser with Charcol mortgage brokers, said at the time: "There would have been no point in incurring the negative PR from this move if there were no plans to increase the SVR in the near future. I suspect it won't be very long before Halifax aligns its rates at 3.99% and any borrowers currently paying 3.5% should expect an increase soon."

By the beginning of March Halifax had confirmed its plans to do just that, and on 1 May the rates went up.


The bank explained that it was because it was costing it more to borrow money on the international markets, and therefore, it had to raise rates to make ends meet. This may seem counter-intuitive at a time when Bank of England interest rates have been at a record low for more than three years.

However, Boulger says: "The cost of funding to banks and building societies has disconnected from the bank rate. Before the credit crunch they could raise money easily. Now, even when the markets are open (and that's not always the case) they are having to pay much more."

He says the ongoing turmoil in Europe is currently behind the high cost of borrowing and adds: "Until the Eurozone crisis is resolved the situation isn't going to change because there will be no extra cash in the system. Unfortunately its not clear when the crisis will be resolved, and it looks like it may not be for quite some time."

So what does it mean?

Clearly Halifax isn't the first lender to start increasing rates. In the last few days there have been SVR rises from a number of lenders, including First Direct and Norwich and Peterborough. It is also not likely to be the last. Yorkshire Building Society is also slated for an increase.

This is due not only to the fact that all the lenders are responding to similar pressures, but also to the fact that if the other lenders increase their SVR, those who leave it lower will get a deluge of applications that they cannot handle and may not want. They then increase their SVR to balance their books more effectively.

We can be sure that the fact that the largest lender has joined the trend of rising rates, there will be few lenders, if any, who will risk keeping their SVR steady.
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