Uswitch.com has described as a ‘blow’ to homeowners as the Co-operative Bank announced it would be increasing its standard variable mortgage rate (SVR) by 0.5% from 1st May.
The Co-op Bank has become the third mortgage provider to put up its standard variable rate (SVR) this year, increasing it by 0.5% from 4.24% to 4.74%. The hike means that 54,000 customers will see their monthly mortgage payments increase even though savings rates are still at an all-time low because of the base rate, says uSwitch.com, the independent price comparison and switching service. The average customer will have to find an extra £15 a month, or £180 a year. But homeowners with more left on their mortgage could see their monthly payments rocket by £70.
The Co-op is following Halifax and RBS who both put their rates up in March. It argues that changing conditions in the mortgage market and the increased cost of funding have forced it to increase rates, but with the base rate still at a record low, many of its customers will find this increase hard to swallow. The news has been softened by the launch of a new five-year fixed product for existing customers with a higher loan to value (90% or above) who may want to find an alternative arrangement, which will be available at the same rate as they currently pay, with no upfront fees or charges.
Michael Ossei, personal finance expert at uSwitch.com, says: “This news is another blow to homeowners who could see their monthly costs shoot up at a time when their finances are already stretched to the max. Many of those on tracker mortgages have been enjoying drastically lower mortgage payments over the last few years as a result of the low base rate. However, this will bring them back down to earth with a bang. And because these increases are nothing to do with the base rate, which still shows no signs of budging, the blow won’t even be softened by a corresponding increase to savings rates.
“Following similar increases from both Halifax and RBS, this move from the Co-op should serve as a warning sign that mortgage payments could go up at any time. If you are enjoying lower mortgage payments at the moment it may be worth overpaying, or putting aside the extra cash you’re saving while rates are so low. And although it may be another year before the base rate rises, the only way for mortgage rates to go in the long term is up.
“Consumers can protect themselves against these rises by fixing their mortgage rate – but with fees and higher rates attached this can come at a higher price. The Co-op has helped to cushion some customers by launching a new five-year fixed product without any upfront fees or charges, which will offer the same rate they’re currently on. But any homeowners worried about their mortgage payments should make sure they get the right mortgage for their needs by shopping around for the best deal.”