Santander raises the cost of SVR mortgages by 0.50%

Santander is to raise the cost of its standard variable rate (SVR) by 0.50 per cent affecting hundreds of thousands of customers.

Santander is one of the UK’s biggest mortgage lenders and the move increases its SVR to 4.74 per cent. This will raise the mortgage costs of a homeowner with a £100,000 mortgage by £26 a month or £312 a year.

The SVR is the default rate that most mortgage products revert to once the fixed or tracker deal ends.

The move is a reminder to borrowers who are currently on historically cheap SVR products that lenders can still push up rates even with no sign that the Bank of England is going to push up base rate from its historically low level of 0.50 per cent where it has been for more than three-and-a-half years.

Santander announced the move in August and said: "The cost of running a bank in the UK has increased dramatically through a combination of increased liquidity, capital and funding requirements."

Other borrowers including the Halifax, the Co-operative Bank and Clydesdale and Yorkshire Banks also announced SVR rate rises earlier this year which affected more than one million borrowers.

At the end of August, Nationwide, the UK’s biggest building society announced that new borrowers will be charges 0.3 per cent more for some fixed-rate mortgages and 0.2 per cent on some tracker mortgages.

This means that average SVR rates are at their highest level for more than three years with the average level at 4.27 per cent at the end of August.

However, liquidity requirements and higher wholesale borrowing costs mean that consumers are increasingly not benefitting from what should be a cheap period in which to have a mortgage.

It still is, if you have plenty of equity in your home and qualify for the better deals reserved for those with a low loan-to-value (LTV) ratio.

The problems that are causing lenders to raise their SVR’s are also at risk of hindering the effectiveness of the Bank of England’s Funding for Lending Scheme (FLS). Again, the cheapest products are being reserved for borrowers with lots of equity.

However, the aim of the scheme was to provide a boost to the whole property market, particularly first-time buyers and those with little equity in their homes. So far, despite 13 lenders signing up to the scheme, cheaper mortgages for new homeowners have been thin on the ground.

Earlier this week, the Bank of England reported that demand for further borrowing has weakened as consumers opt to pay down existing debt rather than take out additional loans.