Halifax just announced that from 1st May 2012 they will be increasing their Standard Variable Rate (SVR) from 3.5% to 3.99%. The SVR is the default rate a lender will apply to your mortgage  after the initial deal, e.g. 2 year fix, has expired.  As the name suggests, it is variable and doesn’t have to follow or track the Bank of England Base Rate (BBR), currently 0.5%.  The BBR has been the same for nearly three years now, as has Halifax’s SVR. They could have changed their SVR at any time and as many times as they wanted, but have decided that now was the right time to do it.

Why the increase?

The reason Halifax has decided to increase their variable rate now is due to the higher cost of raising funds which are then lent to borrowers. These funds are typically raised from the money markets and from savers deposits.  The increase to the Halifax’s SVR reflects the fact that raising money through wholesale markets is currently very expensive by historical standards.

What does that mean for borrowers on Halifax’s SVR?

From 1st May, the interest rate used to calculate their monthly payments will jump from 3.5% to 3.99%.  For borrowers on an interest only basis, their monthly payments will increase by 14%.  There will also be an increase in monthly payments for capital and interest mortgages, but the increase will depend on the outstanding term.

… and for others?

There is a real chance that this move will trigger similar changes from other lenders.  The mortgage market is very competitive so a decision made by one lender will always be reviewed and analysed by its competitors, as seen by the recent changes in interest only policies which spread very quickly from one lender to the next.

Do I need to do anything?

This announcement is a timely reminder that things do change quickly in the mortgage market and that it is always a good idea to frequently review your mortgage.  It may well be that the best solution is to do nothing. However, a full mortgage review would be worthwhile, even if your mortgage is not with Halifax, as it could be useful to explore other options in case your SVR increases too!