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One million homeowners hit by £660 a year mortgage rate rise today... and there's more pain on the way


  • 850,000 Halifax borrowers will see mortgage repayments rise by up to £55 a month
  • Others lenders set to follow suit in coming months
  • Rises due to difficulties borrowing from European money markets caused by financial crisis
  • Hike in interest rates expected to add £300m to UK mortgage repayments over course of 2012
  • Council of Mortgage Lenders say repossessions set to rise by 22 per cent
Homeowners will be hit by rises of up to £660 a year today as Britain's biggest mortgage lender blamed the European financial crisis for a hike in rates.

Halifax is raising its rate of borrowing by 0.49 of a per cent, meaning 850,000 borrowers will have to find up to an additional £55 a month on a typical £200,000 property.

Three other lenders, Co-operative, Clydesdale/Yorkshire and One Account will also raise interest rates today by between 0.25 and 0.5 of a per cent which will hit a further 184,000 borrowers in the pocket.

The Bank of Ireland is due to increase its rate by 1.5 per cent in the coming months.

Troubling times: Britain's biggest mortgage lender Halifax will push up borrowing rates today which will affect 184,000 borrowers

The hike in interest rates is a result of Europe's worsening financial crisis which has made borrowing from money markets more costly for lenders who are passing those costs on to high street borrowers.

Although the Bank of England kept the interest rate at a record low of 0.5 per cent in April, for the 38th consecutive month, lenders such as Halifax are increasing Standard Variable Rates (SVR) on home loans.
And today's hikes are just the start of the bad news for borrowers with other banks and building societies expected to hike up their own interest rates in the coming months.

According to a study by the consumer magazine Which? three out of every four mortgage-holders questioned said they would be affected if their repayments rose by £50 a month, with 41 per cent saying they would need to cut back on regular spending and 11 per cent claiming it would mean they did not have enough for essentials.

The study also suggested that a monthly increase in repayments of just £100 would place one in ten (11 per cent) at risk of seeing their property repossessed.

The Government has a 39 per cent share in Lloyds Banking group, which owns Halifax, and it also has an 82 per cent stake in the Royal Bank of Scotland which owns Natwest.

Big dipper: How mortgage rates have fallen over the past five years. (Source RICS)

Big dipper: How rates for fixed, tracker and standard variable mortgage customers fell in the previous five years (source RICS)

The increase will push up the total mortgage bill for the UK by £300million a year and charities such as Shelter have raised concerns that it could spark a spiral of debt.

The Council of Mortgage Lenders is anticipating repossessions to rise by 22 per cent during the remainder of this year.

Which? chief executive, Peter Vicary-Smith advised anyone who was struggling with repayments to speak to their lender immediately.

He added: '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.'

The majority of the borrowing hikes affect standard and variable rates - the rates that borrowers move on to when their initial discounted fixed rate deal expires.

Around six million people in the UK are thought to be on SVR mortgages.

Mortgage brokers anticipate that small and medium-sized lenders will be the next group to push up interest rates.

As bigger lenders turn to High Street depositors to raise funds instead of the money markets smaller building societies have to pay more to attract savers.

Rates rise: Mortgage brokers anticipate that small and medium-sized lenders will be the next group to push up interest rates

Brokers also predict that other lenders such as First Direct, HSBC and ING Direct will be tempted to push up rates from their current levels of between 3.5 and 3.94 per cent to benefit from the fluctuating conditions.

New borrowers have not escaped, with mortgage rates for the average two-year fixed mortgage increasing from 4.27 per cent to 4.66 per cent since the beginning of January. Arrangement fees are also at a record high at an average of £1,439.

Those who are unable to switch to cheaper deals because their properties have fallen in value or they fail to meet strict lending criteria, the so-called mortgage prisoners are worst hit.

The Financial Services Authority anticipates that nearly half of all borrowers who have taken out mortgages since 2005 will potentially be affected.
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