Santander hikes variable rate 0.5%

Updated: 
SantanderMortgage costs for thousands of borrowers will jump from Wednesday when one of the country's biggest lenders hikes its standard variable rate (SVR).

Santander's 0.5% rise to 4.74% will result in an average increase of £26 a month - or £312 a year - for a typical £100,000 mortgage.


The switch is expected to affect hundreds of thousands of customers, although Santander has not disclosed the figure.

Santander's SVR change, first announced in August, is one of a number by lenders in recent months, dashing hopes that households will see some benefit from the Bank of England's funding for lending scheme.

Santander blamed the increase on its own funding costs and pointed out that similar market dynamics drove its competitors to push up their SVR rates five months ago.

More than a million home owners saw their mortgage rates increase in May as lenders such as Halifax, the Co-operative Bank and Clydesdale and Yorkshire Banks raised their SVR rates, even though the Bank of England base rate remained at a historic 0.5% low. At the end of August, Britain's biggest building society Nationwide announced it was pushing up some mortgage rates for new borrowers, adding 0.3% on some fixed-rate products and 0.2% on tracker deals.

While in its early stages, the funding for lending scheme has sparked some increased competition among mortgage lenders, although much of this has been concentrated around borrowers with larger deposits of around 40%.

Lenders have said mortgage availability has been boosted by the scheme, although they have tightened their borrowing criteria and do not expect this to loosen in the next few months.

Fears have been raised that many people hit by the SVR increases will struggle to switch to a cheaper deal and could find themselves trapped, with average SVR rates at their highest levels in three and a half years. The typical SVR rate had climbed to 4.27% by the end of August, the highest since spring 2009, according to Bank of England figures.

Santander said its own SVR increase was prompted by a range of factors, including the increased cost of funding a mortgage. A Santander spokesman said: "Additionally, the cost of running a bank in the UK has increased dramatically through a combination of increased liquidity, capital and funding requirements."

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