Mortgage Rate Rise Hits A Million Households

More than one million UK homeowners have seen the cost of their mortgage payments jump as lenders, including two state-backed banks, raise borrowing costs.

Halifax, the Co-operative Bank, Clydesdale Bank and Yorkshire Bank are all raising their standard variable rate (SVR), the amount charged by lenders when borrowers come off a fixed-rate deal, from the beginning of May.

Halifax , which is owned by taxpayer-backed Lloyds Banking Group and has the most borrowers at 850,000, is raising its SVR from 3.5% to 3.99% - resulting in additional payments of hundreds of pounds a year.

The average balance of those affected is £67,500, meaning payments would increase by nearly £16.40 a month to £498.95 on a capital repayment mortgage with 15 years remaining. This equates to nearly £200 extra a year.

Someone with a higher balance of £100,000 would pay £24.30 extra a month, with monthly repayments going up to £739.19, the equivalent of nearly £300 more annually.

Around 54,000 Co-operative Bank customers will see their payments increase by about £15 a month, or £180 a year, as SVR rates go up, and Clydesdale and Yorkshire Banks' 30,000 customers, will see their bills rise by almost £30 a month.

Natwest, which is owned by taxpayer backed RBS , is also pushing up the rate on its One Account, a non-SVR product, by 0.25%, affecting around 100,000 customers.
For the majority of these customers, the new rate will be 4%.

Bank of Ireland has also announced an increase in its SVR, which will take effect in two stages on June 1 and September 1.

The lenders blame the weak economy, the ongoing eurozone debt crisis and the increased cost of funding a mortgage - although the Bank of England has not raised its base interest rate since March 2009.

Last week it was revealed the UK had slipped back into recession , the first double-dip since the 1970s.

Fears have been raised that people could struggle to switch to a better deal as lenders have already started tightening their borrowing criteria ahead of the introduction of stricter mortgage rules from next year.

Research from the consumer group Which? revealed 70% of mortgage-holders are concerned about an increase in interest rates and 14% say they are already struggling with repayments.

Borrowers who have not managed to pay off much of their loan or are in negative equity could find themselves stuck with their existing lender as they will face more probing questions to prove they can pay back loans.

Greater restrictions are set to be placed on mortgage loans due to a clampdown by the Financial Services Authority on irresponsible lending, to make sure borrowers can only take out deals they can afford.

According to the Which? survey of 3,345 mortgage-holders, an increase of £100 a month would see 20% not having enough for daily essentials such as food and 11% being unable to pay their mortgage.

Consumers described the emotional impact of increases in mortgage repayments as "devastating" and "a disaster".

Which? chief executive, Peter Vicary-Smith said: "Our advice to anyone struggling with their mortgage repayments is speak to your lender straight away.

"It is encouraging that a third of people we spoke to had approached their lender but worryingly in one in five cases, they said their lenders offered no help at all.

"This is just not good enough and we want to see banks do more to help their customers who are struggling."

Which? blamed the SVR rises on lack of competition in the mortgage market and the failure of the Government to take action to promote competition.

The Council of Mortgage Lenders trade body said it has seen "little evidence so far" that borrowers on an SVR are paying uncompetitive rates.

It believes market pressures will keep rates in check as lenders who raise their SVR rates too aggressively risk losing their most creditworthy customers. "

©SkyNews