The Base Rate wasn’t the only thing to rise this month, as lenders moved to increase their standard variable rates (SVRs) as well. The Monetary Policy Committee’s (MPC) decision to raise interest rates had been predicted for months and a greater surprise would have come from no movement at all. Nevertheless, many banks have yet to announce what they plan to do following the rise. Moneysupermarket.com has attacked this slack response as leaving borrowers in a ‘financial no-man’s land’ in the run up to Christmas and accused lenders that raised their rates by more than 0.25 per cent of trying ‘to disguise an attempt to increase profits’.
Louise Cuming, head of mortgages at moneysupermarket.com, stated 61 of 112 lenders had yet to make clear what their intentions were for their products’ SVR, and added: “Half the market’s providers have yet to inform customers of their fate. Consequently, with millions of people not able to plan their finances going into the New Year, Christmas could be a time of anxiety rather than cheer for many.”
A PR exercise?
The criticism was backed by Ray Boulger, senior technical manager at John Charcol, who suggested the delay was more of a PR exercise than anything else. He explained: “It’s hard to believe banks hadn’t looked at what they would do if the rates changed, considering 95 per cent of people thought the rates were going to go up. Some small lenders might wait to see what the big boys do, but otherwise there is no reason why they shouldn’t have had their minds made up before the Base Rate announcement.
“There are PR benefits to delaying the rate announcement. Banks and building societies play the system, even if they took the decision some time ago. Most don’t announce their new savings rates until the end of the month and as mortgage rates get more coverage, banks view the PR benefits in delaying the announcement to coincide with the savings announcement. Stragglers then escape the negative PR, than if they announce straight away.”
However, Bernard Clark, communications manager at the Council of Mortgage Lenders (CML), argued that lenders needed to see how the change would impact on their business. “There is probably more uncertainty over interest rates than there has been for some time. It’s difficult to see how lenders can bring any clarity to that. Lenders still need to take final stock or what’s going on in the market and take matters in their own time. What happens with rates now is no different to what’s happened in the past.”
Announcing the changes
One lender that announced a rate change was Woolwich, which raised its SVR by 0.30 per cent. David Finlay, intermediary business director for Woolwich, said: “The majority of the big lenders have announced their changes by now. While there was no particular reason for delay, we thought it appropriate to announce when we had ironed out the terms and conditions for our customers.”
Yet, Cuming accused lenders of trying to increase their profits on the sly, with Abbey setting a dangerous precedent for such a predominant lender, with its 0.34 per cent raise. However, Boulger said it would have been more surprising not to see lenders increase their SVR beyond the Base Rate rise and stated that fewer lenders appeared to be raising their SVRs than last time. “The rise will only affect those coming to the end of their deal and who stay on SVR. The majority of people won’t see it and, if anything, it should act as a wake up call to move onto another deal.”
He added: “Every time the Base Rate changes, it gives lenders the chance to re-balance their savings and borrowing rates. They are always looking to increase profits, but not in a way that will drive away customers.”
One lender that did raise its rates by more than 0.25 per cent was Bank of Scotland, which increased its SVR by 0.35 per cent. Ross Keany, spokesman for the Bank of Scotland, brushed off suggestions of profiteering. He said: “We have made the price changes in line with the rest of the specialist market. It’s totally inappropriate to compare our SVR to those of mainstream lenders. Only a small percentage of our customers are on SVR, so for the vast majority, it will make no difference.”
WA number of commentators have criticised lenders for delaying their decision to increase their SVRs, although many see little need for increases above the 0.25 per cent made by the MPC. While it is the lender’s prerogative, in an increasingly competitive market only those that can offer good rates and service, coupled with transparency over their fees, charges and costs will be seen to appeal to borrowers and mortgage intermediaries alike.
