Skipton building society has written to thousands of borrowers telling them it is dropping its promise to keep its main mortgage rate within 3% of the Bank of England base rate. The move will immediately affect 29,000 borrowers. Others who are still on fixed rates will move on to the higher SVR when their deal comes to an end. It is allowed under an "exceptional circumstances" clause contained in the society's mortgage offer letters, which also include the base rate promise.Skipton said the high cost of mortgage funding and the fact the base rate had remained at a 315-year low since last March had forced it to invoke the clause in order to offer long-term good value and security to its 100,000 borrowers and 750,000 savers.
It added that its new rate remained below the average SVR of the top 10 building societies – currently 5.12% – and it would consider reintroducing the guarantee at a later date.Skipton's group chief executive, David Cutter, said: "We have maintained the strength of the uniquely diversified Skipton Group throughout some of the worst trading conditions the UK has ever seen, and will continue to do so by responding pragmatically – and at the appropriate time – to ongoing developments in the economy and the financial services marketplace that impact upon our business." While we understand this change will be unwelcome for those borrowers who will end up paying more as a result, we hope that they will understand it is a necessary step that is in the best interests of our membership as a whole, and indeed the society itself, in the long run."
"Lenders who are writing a lot of mortgages can adjust their current pricing and get bigger margins on their new business," he said. "Skipton, though, will be stuck with all the business they wrote pre-credit crunch, much of which is on very skinny margins and some of which will now be loss-making, particularly some of the long-term trackers."Boulger said borrowers on the SVR with mortgages of up to 80% loan-to-value should shop around for a new deal. "One option would be to stay with Skipton and take another deal, but with the exception of its seven-year fixed-rate deal its mortgages are expensive.
"If you want a two-year fixed-rate it is charging 4.99%, which is ridiculously expensive," he said.He added that the society's offer of a 90-day window for unhappy borrowers to move without paying a fee could prove useful to people currently locked in to an expensive fixed rate, who would be able to switch to a cheaper loan.Skipton is not the first lender to change its terms to make its SVR less favourable to consumers. Last year Nationwide, which had a 2% cap on its base mortgage rate, introduced a second SVR for new borrowers so it would not have to offer them the same deal.
Four lenders retain a mortgage price cap, all of them now part of the Lloyds Banking Group. Boulger said its position as a government-backed bank meant it was unlikely that the SVR promise would be changed on existing mortgages offered by, Lloyds, Halifax and Intelligent Finance.In recent months, remortgaging has plummeted as borrowers have remained on SVRs at the end of short-term fixed-rate and tracker deals. In some cases, falling house prices have made it impossible for people to switch, but in others borrowers have opted to stay put as a result of low SVRs. This move, combined with fears that rising inflation could push up interest rates later this year, could lead to an increase in remortgage activity.
