YOUR BANK may not have told you yet, but the chances are that if you have a variable rate mortgage, your monthly repayments will be rising soon.
Last week’s decision by the Bank of England’s Monetary Policy Committee (MPC) to raise interest rates by a quarter point to 3.75 per cent was greeted with silence by most banks and building societies which claimed to be “considering their positions”.
Mortgage brokers had no illusions: “We expect lenders to pass on the base rate rise to borrowers,” said Simon Jones, director of Savills Private Finance.
Mr Jones has so far proved correct. Of the banks and building societies that have announced rate changes, just two — Abbey National and Mortgages Plc — have passed on less than the full rate rise. Abbey National, the UK’s second-largest mortgage lender, chose to raise its rate by 0.21 percentage points.
Halifax, Cheltenham & Gloucester, Woolwich, HSBC, Lloyds TSB, Northern Rock, Britannia Building Society, Mortgage Express and Chesham Building Society all passed on the full quarter-point cut. Nationwide is so far the only lender to pass on more than the base rate rise: is has raised its mortgage rate by 0.35 percentage points.
Philip Williamson, Nationwide’s chief executive, said that he wanted “to be able to give savers something to cheer about”; therefore the bank passed on more than the full rate rise to both borrowers and savers.
In fact, Nationwide borrowers have been well treated by the building society over the past few years. Its tandard variable rate (SVR) is now 4.89 per cent, 0.86 percentage points lower than those of itsa rivals Halifax and Abbey National. Moreover, since January 2001, the base rate has fallen by 2 percentage points. Halifax and Abbey both passed on 1.74 percentage points of the cut, while Nationwide has passed on 2.06 percentage points.
Of the big lenders, only Royal Bank of Scotland and Alliance & Leicester have yet to declare their hands.
While banks and building societies mull over their options, so should their customers. The impact of a quarter-point rise on most loans is not dramatic. But that is no reason not to remortage in order to cut repayments.
“Many borrowers can counter their likely increase in monthly payments, but they seem not to care,” says David Bitner, head of product operations at The MarketPlace at Bradford & Bingley. He points to a survey carried out by The MarketPlace, which showed that more than half of homeowners would not consider switching home loans unless rates rose by a full percentage point or more. “This wait and see attitude is costing borrowers dearly,” Mr Bitner said.
“By shopping around, the four million borrowers on standard variable rates could save about £124 a month, a saving that would offset a 2 percentage-points rise in the bank base rate.”
The MarketPlace’s findings on consumer apathy are confirmed by figures from Intelligent Finance, which says that 52 per cent of homeowners have never switched mortgage provider.
Brokers say that the best of the fixed-rate deals have already sold out, but it may be worth switching to very cheap discounted deals in order to take advantage of relatively low repayments while you still can. The idea is to overpay as much as possible now, because rates will rise further.
Charcol, the mortgage broker, recommends a stepped discount from Accord Mortgages for those looking for a rock-bottom rate. The deal cuts 2.75 percentage points from the SVR in the first year (giving an initial payable rate of just 2.74 per cent) 2 percentage points in the second year and a full point in year three. Overpayments are allowed, and redemption penalties apply for three years.