Royal Bank of Scotland (RBS) and Halifax have increased their mortgage rates for 200,000 and 850,000 customers, respectively. This is potentially the start of a scenario that analysts are referring to as a the ‘mortgage time bomb’ – in which the banks look set to pass on the rise in wholesale money market borrowing to their customers. Despite being 82% owned by the taxpayer, RBS has upped its RBS and Nat West branded offset mortgages to 4% - a rise of 0.25%. The same change will hit its ‘One Account’ range on 1st May; a portfolio that includes Virgin One, Direct Line One and Nat West One.
The Halifax has upped its standard variable rate (SVR) from 3.5 to 3.99%, with affected borrowers seeing the repayment jump from May 1st. The Halifax rise is double that of RBS & Nat West, with those on a £150,000 repayment mortgage, typically paying an extra £40 per month. All these rises, despite the recent third anniversary of the Bank of England’s historically low base rate of interest at 0.5% - with no imminent increase expected.
Although the LIBOR rate – the cost of borrowing on the money markets – has seen a large increase from 0.5% in 2009 to 1.08% in January 2012, it has fallen slightly since then, and is expected to continue its downward trend, after fears of a second credit crunch have subsided. This of course begs the question of why have these banks put their rates up now, instead of taking the ‘pain’ for a bit longer, like Nationwide for example, who pledged during the boom years to keep its popular Base Mortgage Rate at base rate plus 2%. This is a policy that the bank have continued to stand by, despite its borrowing costs going up from £400m in 2009, to £700m in 2011.
What makes these rate increases particularly controversial, is the fact that over the last few months, the European Central Bank (ECB) has been dishing out cheap loans to British banks. The rate on these loans is a trifling 1% and one of the villains of this piece – Lloyds Banking Group (who own Halifax) borrowed €11.4bn worth. So the question has to be asked; why are certain British banks putting up their interest rates whilst simultaneously gorging on European taxpayers’ money?
Sources: thisismoney.co.uk (image courtesy of guardian.co.uk)