Shop Around to Beat the Base Rate Rise

There was more bad news for homeowners and potential property purchasers alike when Santander announced an increase to its Standard Variable Rate (SVR) last week. That increase was, in percentage terms, quite significant with the rate changing up to 4.74%.

Santander claim that the rate change will add around £26 a month to a £100,000 mortgage but insisted that it had no further plans to increase the SVR again. The rise will affect all existing Santander customers along with those acquired from other providers with the exception of Alliance and Leicester. It’s thought that the move will see an increase in monthly payments for a ‘few hundred thousand customers’.

“For the last three years the amount it costs us to provide mortgages and the rates we offer our savings customers have been increasing, despite the base rate remaining static,” a Spokesperson for Santander said.

“Additionally, the cost of running a bank in the UK has increased dramatically through a combination of increased liquidity, capital and funding requirements,” the company added.

Santander have, however, been accused of profiteering by some who have deemed the increase unnecessary. It’s been suggested that this was a profitable area for the lender and they have merely increased their SVR in order to take further advantage.

Mark Harris of SPF Private Clients said that this was ‘profiteering, pure and simple’.

“The move puts its SVR towards the upper end of the scale when compared with other big lenders such as Halifax, Woolwich and Nationwide,” Mr Harris added.

Following the increase, advice has come from many quarters, urging those affected to shop around. For those in a variable rate mortgage with no penalties for settlement, such a move could bring monthly payments back to more affordable levels.

“Any homeowners worried about their mortgage payments should make sure they do their homework to make sure they get the best deal possible to suit their needs,” said Michael Ossei of financial comparison site uSwitch.

Mr Ossei also warned that further hikes in the SVR from other lenders were likely.

“This latest increase should serve as a warning that mortgage payments could go up at any time and with very little notice. If you are enjoying lower mortgage payments at the moment it may be worth overpaying, or putting aside the extra cash you’re saving while rates are so low. And although it may be another year or more before the base rate rises, the only way for mortgage rates to go in the long term is up,” he concluded.

Who Takes the Blame for the Slow Mortgage Market

The property market as a whole was expected to slow down considerably this summer as the UK headed into a season of celebrations. With the Queen’s Jubilee followed quickly by the Olympics, it was predicted that sales and mortgage enquiries would be subdued, in keeping with the typical reaction to these types of events.

However, as the Jubilee fades and London 2012 approaches, another factor is being blamed for the lack of mortgage enquiries in recent weeks. The wet weather that has blighted much of this summer so far has been cited as the main reason for a significant drop in approved mortgages for home purchases in June.

Figures released this week by the British Bankers’ Association (BBA), claim that those approved home loans fell by 11% in June to 26,269 from the previous month. Meanwhile, the met office indicate that this was the wettest June recorded since 1910 so are those two sets of statistics related?

The BBA’s report blames the wet weather along with a host of other factors besides,

“June’s approvals numbers were affected by the Diamond Jubilee celebrations, Euro 2012, and the wet weather,” the BBA said.

“Paying off loans or overdrafts and building up deposits is the current consumer ambition,” David Dooks of the BBA added.

Mortgage activity as a whole has been slow since March and gross lending of £7.2 billion in June was also comfortably below the six month average. While no single factor can be held wholly responsible, those major events combined with appalling weather have all been factors and the prognosis for the near future is by no means encouraging.

“The ongoing eurozone crisis, which has stepped up a level in the past week, will continue to undermine consumer confidence and encourage buyers and sellers to sit on their hands until there is significant improvement,” said Mark Harris of SPF Private Clients.

“Any recovery in the housing market remains a long way off.”

As far as the ‘holiday effect’ is concerned, with the Jubilee over and the Olympics about to get underway, could we see an upturn in mortgage lending in the coming months? The wet weather has also abated and although the long range forecast is mixed, it seems unlikely that we will be returning to the torrential downpours seen throughout May and June.

Those events may soon be behind us but as Mark Harris from SPF Private Clients pointed out, there are considerably more factors affecting the mortgage market besides the weather.