Borrowers with variable rate mortgages may suffer when interest rates rise.
Those borrowers on lenders standard variable rate mortgages may suffer when interest rates rise, according to the consumer group Which? who warn that home-owners might be financially squeezed once interest rates lift.
Standard variable rate mortgages, are usually set at about 2 per cent above the Bank of England base rate and, according to economic conditions such as an interest rate change, the monthly amount can go up or down. Borrowers on this type of mortgage have benefited from an historically low interest rate of 0.5 per cent and around 40 per cent of mortgage borrowers, are now on lenders standard variable rates.
Research by Which? has established that 95 per cent of lenders have failed to pass on base rate cuts to borrowers. The average standard variable rate is currently around 3.48 per cent above base which does not compared favourably with 1.95 per cent back in September 2008.
The Bank of England base rate has been set at 0.5 per cent since March 2009 however Which? advise that 20 per cent of lenders have increased their variable rate since that time. Which? is concerned that households with standard variable rate mortgages will struggle when interest rates are eventually lifted from the current historic low.
Which? chief executive Peter Vicary-Smith has said that high street banks have enjoyed increased margins on mortgages over the last few years and when the base rate rises again, few lenders will be able to justify passing the full amount onto their SVR customers.
