It says it is responding to the “exceptional market conditions” that have seen the Bank of England base rate remain at an historic 315 year low of 0.5% since March 2009 and unusually expensive retail funding (relative to mortgage rates) driven by unprecedented competition and distorted markets.
The Society is temporarily removing the ceiling which previously meant that the majority of borrowers with SVR-linked accounts could not pay more than 3% over the base rate.
Skipton's new SVR, at 4.95%, will take effect from 1 March. This rate remains below the average SVR of the top 10 building societies (currently 5.12%), according to the society. Letters are being sent to all affected customers this week.
Skipton Group chief executive, David Cutter, said: "Throughout 2009, the society operated, by any historical measure, on an extremely low Standard Variable Rate (SVR), which helped our borrowers through the recession. At the same time, we tried to protect our savers from the effects of such unprecedented macro economic policy by offering them consistently high returns relative to an extraordinarily low base rate of 0.5%.
"Our duty for 157 years has been to act in the long-term best interests of all our members (savers and borrowers) and, with base rate expected to remain low for some considerable period, we have reviewed our low SVR.
"We have approximately 750,000 investing members to our 100,000 borrowers. UK savers have been the forgotten victims of the credit crunch. But their money is now in hot demand as banks (in particular those that have been nationalised or part nationalised) continue to reduce their reliance on the wholesale markets. This, coupled with the rates payable by the Government's NS&I, has driven up the cost of retail funding to an unprecedented level relative to mortgage rates."
The society reserves the right to remove its SVR ceiling under exceptional circumstances and is writing to all borrowers explaining what those current circumstances are and what options they have.
Cutter added: " We have maintained the strength of the uniquely diversified Skipton Group throughout some of the worst trading conditions the UK has ever seen and will continue to do so by responding pragmatically - and at the appropriate time - to ongoing developments in the economy and the financial services marketplace that impact upon our business.
"While we understand this change will be unwelcome for those borrowers who will end up paying more as a result, we hope that they will understand it is a necessary step that is in the best interests of our membership as a whole, and indeed the Society itself, in the long run."
The increase will also apply to the Society's specialist lending subsidiary, Amber Homeloans Limited.
