SVRs: what’s the story?

By Greg May, Director of flower IFA

So the Halifax (the UK’s biggest mortgage lender) will raise its Standard Variable rate (SVR) from 3.50% to 3.99% on 1st May. You may be tempted to say, “So what?”, as the news has been greeted with indifference in the street and apparent shock in the mainstream media. But in fact the increase was not unexpected, nor is it bad news – far from it.

It certainly came as no surprise to the mortgage industry.Why? For a start, it was inevitable after the Halifax recently raised its SVR cap from 3.5% to 3.75%. This new SVR of 3.99% just brings them into line with a number of other lenders, and is still below the SVRs of lenders such as Santander at 4.24%.

The underlying reason, though, is that the cost of borrowing has increased, and with the base rate looking as if it will remain low for a good while yet (possibly even for a couple of years), lenders need to obtain their margins from increasing their rates, regardless of base rate movements. The Halifax is just the first of many – in fact, the Bank of Ireland has already followed suit.

I’m expecting to see other lenders raise their SVR rates sooner rather than later - and this in its turn will spark a rise in remortgage activity as homeowners reassess their current mortgage deals. So the rise in SVRs is in fact good news for customers as they’ll be prompted to reduce their mortgage outgoings, (rather than just sitting on their current SVRs), and it’s good news for lenders and intermediaries too. Everyone’s a winner.