November 21st, 2013
It has emerged this week that some lenders are looking to hike interest rates for existing mortgage borrowers, even prior to any potential increase in the Bank of England base rate. The news becomes even more worrying given the source of the information.
The Financial Conduct Authority (FCA), regulator of financial services in the UK, has revealed that several mortgage lenders have approached them to ask for guidance on where they stand about increasing their standard variable rates (SVRs).
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The Supervision Director of the FCA, Clive Adamson, had the following to say to the banks and building societies who had approached the regulator with this request.
“A number of mortgage lenders have engaged with us recently about changing their mortgage contracts, particularly on SVRs. We are writing to clarify our position on how you should engage with us if you want to change your SVR and remind you of the relevant regulations and rules that apply.”
Many contractors with existing mortgages have been happily sitting on the standard variable rates of their lenders since 2008, many of which were tied to the Bank of England base rate, which was slashed as a result of the financial crisis. This led to record low ‘pay rates’, the rates that contractors actually paid once the margin above base rate was applied to calculate the SVR.
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This was all working rather well until certain lenders (Halifax, Santander, and Bank of Ireland) decided to arbitrarily increase their rates in 2012 and 2013. The moves by the larger High Street lenders in particular was rather concerning, and set a precedent of banks satisfying their capital reserves first and foremost, prior to putting the interests of borrowers first.
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“Whilst it is good that we have transparency from the regulator about the requests made by the banks to increase rates for existing borrowers, the so called ‘rules and regulations’ that Mr Adamson refers to don’t actually prevent banks from increasing these rates. If a bank’s right to increase their rates has been written into their mortgage contract, they will have done so for just this eventuality,” commented Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy.
He went on to say: “Those contractors who have been sat on their lenders’ variable rates may want to review their mortgages, particularly since certain fixed rates are coming under pressure to go up.”
For those contractors looking to move or buy for the first time, there may be additional concerns about leveraging the borrowing to an unaffordable level on today’s rates, with the prospect of these increasing to a level where the payment becomes a strain on personal finances in the near future.
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Mr McBurney also advised caution to contractors when selecting their mortgage product. “In my opinion a Bank of England base rate rise is likely to happen in 2015, so a cheaper 2 year deal is not necessarily the prudent option if you are stretching the borrowing for that move. A 5 year fixed rate, or an even longer term if you can find one, may be a safer choice in a climate where rates can only go up.”
Aticle by: Taj Kang, Operations Director at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
Tel: 01489 555 080