Lenders ignore rate freeze!

Published on 19th January 2010

Despite the bank of England announcing last week that they will freeze the base rate at 0.5% for the tenth consecutive month, many mortgage lenders have decided to increase their interest rates. This could cost some households an estimated £1,400 extra per year.

For many Contractors, the news that the Bank of England have decided to freeze the base rate for the tenth consecutive month will have been welcomed as this means another month of lower debt repayments on everything from your bank loans to your mortgage. However, it may come as a surprise that many lenders are ignoring the base rate and deciding to raise the cost of lending.

This month, eight building societies have announced that they are increasing their Standard Variable Rate (SVR). Ordinarily this would be of only academic interest because clients would take advantage of periodic remortgages onto fixed or discounted rate rather than remain on SVR but the credit crunch has changed all that. Over the last ten months, the SVR for most lenders has been much lower than the rates that homeowners had been able to remortgage onto and as such Contractors have remained with the current lender when their fixed or discounted mortgage scheme came to an end. However, if lenders begin increasing their SVR, against the recommendation of the BoE, then many Contractors may find themselves on an uncompetitive rate.

It is frustrating that lenders are able to defy the Authorities and increase borrowing costs, especially as the reason that the BoE has frozen rates is to try and alleviate the cost of borrowing and encourage people to spend and get the economy moving again. The lenders themselves bizarrely claim that they are forced to increase their rates in order to keep up with the banks that are owned by the tax payer in a competitive market place.

If you find yourself stuck on an SVR that is increasing then contact one of our mortgage team.

Simon Foster and Emma Chainey are specialist mortgage advisers and will search the whole of the mortgage market to find you a better deal on your mortgage. The good news is that, because we specialise in offering Independent Financial Advice to Contractors, any mortgage advice that they give you will be tailored to your Freelance status.

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