Homeowners hit by rising mortgage costs

The latest rise in mortgage costs has been announced by Halifax, which said that its standard variable rate (SVR) will rise from 3.5 per cent to 3.99 per cent – an increase affecting 850,000 borrowers.

Their announcement follows a similar declaration by RBS-Natwest, which said that a further 200,000 customers would be hit by a rise of 0.25 per cent, up to 4 per cent, on offset and the one account mortgages.

Yet the worst, experts admit, could still be to come, if other mortgage lenders follow suit as predicted by pushing up their rates.

Housing organisations fear the rises will push more people into the poverty, and potentially, out of their homes.

Kay Boycott, Shelter’s Director of Communications, policy and campaigns, said: “Rising living costs, stagnant incomes and high unemployment mean millions of homeowners are facing a constant struggle to pay their mortgage and are only just managing to stay afloat.

“We’re extremely concerned that many will be unprepared for a rise in interest rates and won’t have plans in place to manage increased costs.

“Even a small increase in monthly outgoings will push some people over the edge and send them into a spiral of debt that could lead to repossession and ultimately homelessness.”

“Even a small increase in monthly outgoings will push some people over the edge and send them into a spiral of debt that could lead to repossession and ultimately homelessness.” Kay Boycott, Shelter

Rise in homelessless?

Under the changes, which are due to come into effect on May 1, Halifax customers with a balance of £67,500 on a standard variable rate – the average balance for such customers – will face a rise of £16.40 per month with 15 years remaining – just under £200 a year.

Customers on the standard variable rate package with a balance of £100,000 outstanding will be asked to pay an extra £24.30 a month over 15 years – an annual rise of nearly £300.

Research released by Shelter in January showed that over the last year, almost a million people have taken out a payday loan to cover rent or mortgage costs, and 54,000 households have been in mortgage arrears for more than a year.

Earlier this year, the Council of Mortgage Lenders predicted there would be 45,000 repossessions and 180,000 mortgages in arrears of 2.5 per cent or more by the end of the year. But some argue that the situation could be far worse as these figures were taken into account prior to the rate increases.

Expensive to borrow

The lenders say that the rises are necessary because the cost of borrowing from banks has shot up in the current economic climate. They argue that banks increase their costs as they become more nervous about lending.

However with economic forecasts failing to predict any kind of respite from the gloomy horizons, analysts only foresee further mortgage rate rises.

“It’s generally agreed that mortgage rates are going to go up this year,” said Sarah Davidson, editor of Mortgage Introducer. “For the mortgage lenders, it’s a commercial decision. If the economy performs more poorly, it costs mortgage lenders more.”

“It’s generally agreed that mortgage rates are going to go up this year.” Sarah Davidson, Mortgage Introducer

“Growth in the UK is still faltering,” Ms Davidson said. “Both increases reflect the fact that mortgage rates are going up this year. There is unease this year.”

The Lloyds Banking Group, which lends mortgages to around three million customers, says that the majority of its borrowers are on standard variable rate (SVR) mortgages.

Government policy

This means that repayment rates are not fixed or discounted, and is the standard mortgage rate offered. Most other products offered are quoted as discounts against the SVR, which, for many homeowners, comes into play once the term of a fixed rate mortgage comes to an end.

In December, 3,100 new customers took out SVR mortgages.

Rates for SVRs are normally set against the base rate set by the Bank of England, although other factors – such as banks’ lending prices – are also taken into consideration, as with the latest increase.

“The Government must deliver a much more powerful consumer credit regulation framework to protect financially vulnerable people from credit dependency and unmanageable debt.” Gillian Guy, Citizen’s Advice Bureau

While some members of the Bank of England’s monetary policy committee have suggested that rates will not rise before 2014, it is understood that others are in favour of an earlier increase.

The Citizen’s Advice Bureau warned of a growing payday loan industry which many are turning to in order to meet their costs. Gillian Guy, the organisation’s chief executive, said: “The Government must deliver a much more powerful consumer credit regulation framework to protect financially vulnerable people from credit dependency and unmanageable debt.”