Mortgage hikes loom for Halifax, Co-op and Yorkshire borrowers

The worst increases will be felt by Halifax customers, who could typically find themselves paying nearly £200 extra a year.

The Co-operative Bank, Clydesdale Bank and Yorkshire Bank are also among those raising rates from May 1, blaming the weak economy and the increased cost of funding a mortgage.

Fears have been raised that people could struggle to switch to a better deal as lenders have already started tightening their borrowing criteria, triggering a fall in the proportion of mortgages being approved.

Halifax is raising its standard variable rate (SVR) from 3.5% to 3.99%, affecting 850,000 home owners. Borrowers revert to paying an SVR when their fixed rate deal ends.

The average balance of those affected is £67,500, meaning payments would increase by nearly £16.40 a month to £498.95 on a capital repayment mortgage with 15 years remaining. This equates to nearly £200 extra a year.

Someone with a higher balance of £100,000 would pay £24.30 extra a month, with monthly repayments going up to £739.19, the equivalent of nearly £300 more annually.

Around 54,000 Co-operative Bank customers will see SVR rates go up by 0.5% to 4.74%, meaning payments will typically increase by £15 a month, or £180 a year.

Clydesdale and Yorkshire Banks’ SVR rate will rise from 4.59% to 4.95%, affecting 30,000 customers, whose payments will typically go up by less than £30 a month.

RBS-Natwest is also pushing up the rate on its One Account, a non-SVR product, by 0.25%, affecting around 100,000 customers. For the majority of these customers, the new rate will be 4%.

Borrowers who have not managed to pay off much of their loan or are in negative equity could find themselves stuck with their existing lender and unable to switch to another provider.

They will face more probing questions to prove they can pay back loans when stricter mortgage rules are introduced from next year.

Ray Boulger, senior technical manager at mortgage adviser John Charcol, said the degree of equity borrowers have in their home will be “the most important factor” for those facing rate rises who want to switch deals.

He said: “Even if they have only got 20% equity they will still have options that will enable them to get a better deal.”

Mr Boulger also said that even small sums of bad credit would be scrutinised by lenders, saying: “Adverse credit will almost certainly cause a problem. The key is the amount of equity within your house.”

He advised those worried they may become “trapped” as lending rules tighten to overpay their mortgage, saying: “For a lot of people, the rate they are paying now will be lower than a few years ago.

“Finances will be difficult due to utility bills and petrol, but quite a lot of people will be able to afford to overpay. Doing this will increase your equity.”

Mr Boulger said that for those who need to borrow between 60% and 90% of their home’s value, each additional 5% of equity will be vital in giving access to greater choice and lower rates, although this could create dilemmas for those with other debts such as credit card bills as “the usual thing would be to pay down the expensive debt first”.

Greater restrictions are set to be placed on mortgages due to a clampdown by the Financial Services Authority (FSA) on irresponsible lending, to make sure borrowers can only take out mortgages they can afford.

The FSA’s Mortgage Market Review (MMR) proposals will place new rules around mortgage advice and income will have to be verified in every application, with lenders placing greater emphasis on other regular outgoings. The FSA does not plan to implement most of the proposals before the summer of 2013.

David Hollingworth, associate director of London and Country Mortgages, advised borrowers to get their paperwork in order.

“Be sure to get the evidence to back up any mortgage application,” he said. “In future being able to demonstrate a track record could well prove necessary.”

He hoped that with lending criteria already tightening, this would lessen the chances of a huge “overnight” shock for borrowers when the MMR rules are implemented.

The Council of Mortgage Lenders (CML) trade body has called on the FSA to allow lenders greater flexibility to help those who may find themselves trapped in their mortgage when the new rules come in, if the lender feels that this is in the borrower’s best interests.

The CML has seen “little evidence so far” that borrowers on an SVR, whether through choice or because they are “mortgage prisoners”, are paying uncompetitive rates.

It said market pressures will help keep rates in check as lenders who raise their SVR rates too aggressively risk losing their most creditworthy customers.

Despite the concerns for home owners, Mr Boulger said that the current low interest rates are a “key factor” helping to keep repossessions down.

“The danger will be if interest rates go up too far, too quickly,” he said.

Giving mortgage prisoners some reassurance, he said that lenders have an in-built incentive to help their existing customers as “the last thing a lender wants to see is their arrears go up”.

“If you have got a mortgage prisoner who has little equity and is stuck on a standard variable rate, if by offering them a five-year fixed rate deal, that will allow the customer to budget and reduce the risk of repossession, that must help the lender, as it will the borrower.”