SVR increases add to borrowers' woes
Ray Boulger of leading independent mortgage adviser John Charcol comments on the news that the MPC left Bank Rate and the size of the Quantitative Easing programme unchanged on the third anniversary of reducing Bank Rate to its lowest ever level of 0.5%.
"Despite Bank Rate remaining at 0.5% for 3 years Bank of Ireland yesterday became the second lender in less than a week to announce an SVR increase. Its 50% hike from 2.99% to 4.49% puts Halifax's 14% increase to 3.99% in the shade, but only 100,000 Bank of Ireland and Bristol & West borrowers are affected, compared to 850,000 with Halifax. Only Bank of Ireland residential mortgage borrowers will be affected because its Buy to Let mortgages revert to a lifetime tracker at Bank Rate + 1.75%.
"Bank of Ireland withdrew from new mortgage lending in the UK under its own brand and the Bristol & West brand in January 2009. Since then its only UK mortgage lending has been as a result of its long term contract with The Post Office, which includes a requirement to offer mortgages under the Post Office brand. The current range of Post Office mortgages reverts to Bank Rate + 3.99%, not Bank of Ireland's SVR, and so the Bank of Ireland SVR change is similar to Halifax's in one respect - in both cases existing customers' SVR is being increased to the same "revert to" rate as new borrowers'.
"The most surprising thing about the Bank of Ireland SVR increase is not that it has happened but that it took its SVR down as low as 2.99% in the first place and kept it there for so long. No other lender which wasn't contractually obliged to do so as a result of an interest rate cap reduced its SVR so low. The fact that Bank of Ireland needed a bail out and is still loss making makes its SVR pricing even more surprising.
"Nevertheless this will still be a massive blow to Bank of Ireland and Bristol & West borrowers with a residential mortgage, but they are lucky to have enjoyed the 2.99% rate for so long. Many who were very happy to stay with Bank of Ireland while they were paying only 2.99% will now look to remortgage and even those only 15% equity in their property will in many cases be able to find a cheaper fixed rate for up to 5 years or a variable rate. Likewise many Halifax borrowers with at least 20% equity will be able to remortgage to a lower fixed or variable rate. However, some borrowers with an interest only mortgage who want to continue on interest only will have become mortgage prisoners.
What Does This Mean for the Wider Mortgage Market?
"Both Halifax and Bank of Ireland are special situations as far as their SVR is concerned. Halifax had a self imposed but contractual interest rate cap keeping its SVR no higher than 3.5%. Although it was able to change this cap by giving a month's notice and waiving the early repayment charge for borrowers with one on part of their mortgage this was nevertheless a constraint on its SVR pricing. Bank of Ireland is what would be described in the investment market as a zombie lender, i.e. it is no longer accepting new business in its own name.
"Thus these are special situations which I don't expect to result in a mass upward revision of SVRs. The top six lenders in terms of new business have revert to rates between 3.89% and 4.24%, with Santander the only one above 4%. Thus Halifax has come into line with its peers, not moved ahead of them.
"Bank of Ireland highlights the risk for borrowers with lenders which are no longer active. Most borrowers on SVR are unlikely to be hit with an increase this year but those with lenders no longer offering new mortgages or whose mortgage has been sold on at the greatest risk of an increase.
"New business mortgage rates are continuing to rise, with no sign of this trend changing. Therefore, anyone affected by these SVR changes, and indeed anyone else considering a new mortgage, should consult a good independent mortgage adviser as soon as possible. Some mortgage offers are valid for as long as 6 months, although there is considerable variation on how long offers are valid for, particularly with fixed rates."