During the last year or so, a lot of our clients who have come to the end of their mortgage tie in period have stayed with their existing lender. We have generally advised this because the new deals they have been offered by their existing lender and other lenders have been comparatively unattractive. So, by staying with their lender on the variable rate that is often linked to base rate plus 2% has been the most attractive option. It has allowed clients to come off fixed rate mortgages, of say 5%, and see their interest rate half at a stroke. The reason for this is due to the base rate being set at a historically low level of 0.5%. Therefore, 2% above this rate gets us to 2.5%. The decision by many lenders to link their variable rate to the base rate for transparency purposes has been very good news for borrowers recently.
Unfortunately, it has not been such good news for lenders as they did not expect rates to fall so low. We have now had nearly a year of these low rates, and it is apparent that the lenders and in particularly the Building Societies are struggling with these variable rates which could be with us for some time. Last week, the Skipton Building Society broke ranks and said that they can no longer offer base rate plus 3% for their variable rate customers. Therefore they are changing their rate from 3.50% to 4.95%, adding an average £105 per month to the national average repayment mortgage of £130,000.
This action, taken by a building society that is part of a mutual movement, which prides itself on treating customers fairly, does cause alarm bells to ring. The reason for this is that it would be one of the last things they would want to do, and the way they have gone about it appears to be more akin to a bank operating than a Building Society. For example, they had said that base rate 3% would be guaranteed unless they encountered exceptional circumstances. These exceptional circumstances are apparently with us now, but have never been defined until now. It sounds a bit like they are making it up as they go along, unlike the Nationwide who have reassured members that their deal of 2% over base rate for qualifying members stays put even though the guarantee has cost them £450 million so far.
I suppose the bottom line is that the Skipton can no longer afford to loose money and have had to make a stand. However, this is at the expense of the consumer who is suffering an interest rate hike at the worst possible time, and I would not be surprised if other lenders are studying their small print in their offers to see if they can follow suit. The remedy for the Skipton mortgage holder is to consult an Independent Financial Adviser who specialises in mortgages to see if it is feasible to move your mortgage now that your tracker has fallen off the tracks. Kieron Bassett Financial Services have two Independent Financial Advisors. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.
Kieron Bassett CertPFS
25 January 2010
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