Exclusive: Mortgage payments will rise as Skipton hikes rates

The UK's fourth biggest building society blamed "exceptional market conditions" for its decision to raise SVR from 3.5 to 4.95 per cent. The move will see typical monthly payments on a 100,000 mortgage increase by 121 – or 1,254 a year.

Skipton said 29,000 borrowers would be affected when the new rate comes into effect on March 1. A further 35,000 borrowers are due to revert to SVR in the future.

The historically low Bank of England base rate of 0.5 per cent has made it difficult for building societies to attract new savers.

They have also faced increased competition for retail deposits and complained of market distortion, claiming that state-backed banks benefit from an uneven playing field.

Asked about the rationale for the rise, chief executive David Cutter said: "We have to act in the long-term best interests of the society as a whole.

"In terms of the exceptional circumstances we operate in, as a deposit taker in an extremely low interest environment, we need to pragmatically review what our SVR should be.

"We believe that where base rate has been for almost a year now, this the right thing to do in the long-term best interests of the society."

He dismissed any question that Skipton Building Society was short of cash. "Far from it. We are carrying very high levels of liquidity and have done through the credit crunch.

"This is all about ensuring sustainable earnings for the core business and making sure they are at an appropriate level for the society as a whole."

Mr Cutter added: "We appreciate this is unwelcome news. But the rate is still below the average of the top 10 building societies of 5.12 per cent. It is still a reasonable rate."

The SVRs at Leeds and Yorkshire building societies are 5.49 per cent and 4.99 per cent respectively. At least six other building societies have increased their SVRs since the middle of last year.

Skipton introduced a ceiling in 2002, which prevented the majority of borrowers with SVR-linked accounts from paying more than three per cent over base rate, and said yesterday it would voluntarily reintroduce the ceiling in the future, "once these exceptional circumstances no longer prevail".

Borrowers whose mortgage terms included the SVR ceiling will be given 90 days if they wish to redeem their mortgage, free of charge.

Skipton has around 750,000 investing members, compared to 100,000 borrowers. It is writing to affected customers this week.

The increase in SVR will also apply to the society's specialist lending subsidiary, Amber Homeloans Limited.