As of 1 May 2012, Halifax’s standard variable mortgage rate will be increased from its current rate of 3.5% to 3.99%, the first rise by the 41% taxpayer owned bank for three years and a hike being viewed poorly by many commentators.
The move is predicted to affect 850,000 customers; with thousands more to be affected in the future as customers on other deals revert to the default standard variable rate. The true cost is estimated to amount to an extra £16.40 on top of the £498.95 a month the average borrower spends on their mortgage repayments, having borrowed £67,500. A typical interest-only borrower’s bill will go up by £27.54 to £224.44.
The justification from Halifax was an increase in the cost of the ways which they raise their funding – ie. From the deposits of savers and the financial markets – which they say is now “very high by historical standard”. Some have commented that this seems a strange comment to make in the face of record cheap rates in the UK and Eurozone.
The Bank of England has not changed their base rate level from the 0.5% it has been for three years, the lowest ever for three centuries and in fact the announcements came on the third anniversary of the last base rate reduction, 05th March 2012. The rate hike by Halifax has thus been seen by some as profiteering.
Halifax, however, is not alone in increasing its rates. The Royal Bank of Scotland also lifted rates for two mortgage products – its Offset Loan and One Account, by 0.25% up to 4%. Santander is also said to be raising rates on some home loans sold through intermediaries.
The real affect of these changes, and of the unfortunate cumulative effect of benefit cuts and poor quality accommodation, has been highlighted in a recent report by the charity Family Action. They believe that some families in the UK have as little as £2 a day to spend on food after paying housing and fuel costs.
They also suggest that the problems have been compounded by poor accommodation standards, including low quality or sparse installation of insulation, leading to high fuel bills when combined with the historically high prices of fuel. As a result, they want Chancellor George Osborne to tackle fuel poverty, do away with housing benefit caps and improve security of tenure as a matter of priority.
Commentators will view the high levels of inflation, at 3.59% in January 2012, as a factor that will continue to exert pressure on the Monetary Policy Committee (MPC), whose job is to tackle inflation, not to encourage growth.
Mr King, Governor of the Bank of England, might soon become rather tired of having to write to Mr Osborne to explain why inflation is once again above the 2% target rate that it is his job to meet. The low base rate cannot last forever therefore, and these rises may not be the last in Britain’s retail banking industry.
The full report by Family Action can be found at this link.