Savers lose as home loans rise

More than 30 banks and building societies have put up their mortgage rates in the last fortnight, some by more than the Bank of England interest rate rise, while all but a few have so far failed to pass on the benefits to their savers.

The Bank of England put up interest rates by 0.25 per cent at the beginning of the month. Yet in the last fortnight Royal Bank of Scotland, NatWest and West Bromwich building society have all put up their standard variable rate (SVR), the rate which discount mortgages follow, by 0.3 per cent, while the One Account, Nationwide, Britannia and National Counties have all hiked their rates by 0.35 per cent. For anyone about to take out a mortgage for the first time, or to remortgage, all the new rates come into immediate effect. Borrowers with existing tracker, discount rate and standard variable rate mortgages will generally see their monthly repayments go up from next month. But savers may have to wait even longer to see rates on their accounts improve.

'We've seen a few institutions putting up savings rates but these are generally the smaller building societies. The bigger institutions - and in the past this has applied in particular to the Halifax - tend to leave any rate increase to the last minute,' says Susan Hannums of independent financial advisers AWD Chase De Vere.

Some banks and building societies such as the Post Office and National Savings and Investments were quick to pass on the quarter-point rise, while others such as the Cheshire building society, Bank of Ireland and the Yorkshire building society have put up rates by 0.35 per cent on select accounts. Savers need to be aware, however, that a large number of banks and building societies cut the rates on their accounts for no clear reason in the first half of the year. So any rises may put savers back in the same position that they were in at the end of last year - when they should be in a quarter of a per cent better off.

'A prime example of this is Marks and Spencer Money, which cut the rate on its account by 0.25 per cent in July. Straight after the base rate rise it put it up by 0.25 per cent,' says Hannums.

Borrowers also need to watch out as three lenders have applied similar tactics to their mortgage rates. Norwich and Peterborough and the Nottingham building society both put up their SVRs before the rate change - and then again last week. Borrowers on a discount rate mortgage with the N&P will therefore have to stomach a total increase of 0.44 per cent, while Nottingham's customers will see a 0.35 per cent rise in their repayments. The Co-op is the worst offender. It added 0.25 per cent before the base rate rise, taking its SVR to 6.39 per cent - and last week announced a further rise of 0.25 per cent. This will add £42 a month to a 25-year, £100,000 interest-only standard variable rate mortgage with the Co-op.

David Hollingworth of brokers London and Country warned borrowers that they need to compare like with like when looking at new deals. 'Some lenders haven't yet put up their SVRs and so their discounted rates might look a better bet compared with trackers, where the rates have already gone up to reflect the Bank of England base-rate move. There are enough trackers in the market that are competitively priced compared with discounts to make them a more attractive option though, especially as some lenders are putting their SVRs up by more than 0.25 per cent.'

The Portman building society is one lender that may have confused borrowers since the rate rise, points out Nick Gardner, of brokers Chase de Vere. The week after the base rate hike it launched a new discounted mortgage at 2.21 per cent below its SVR, which it advertised as giving a headline rate of 4.29 per cent. It didn't mention however, that this was based on its old SVR of 6.5 per cent. Last week it put this up by 0.25 per cent, giving a new headline rate of 4.54 per cent.

The 0.25 per cent increase will add an extra £20.83 a month to a £100,000 interest-only standard variable rate mortgage, and anyone on their lender's SVR would be wise to move. 'Those borrowers should seriously consider remortgaging to a cheaper fixed, discounted or tracker-rate deal, particularly as the markets are pointing to another 0.25 per cent rate rise, possibly as early as November,' says Melanie Bien, associate director at mortgage brokers Savills Private Finance.

Lots of lenders issued new fixed-rate deals last week and it is possible to still get a loan priced at under 5 per cent. Bristol and West and Northern Rock are both offering two-year fixes at 4.59 per cent with a fee of 1.5 per cent of the loan. The Portman has a two-year fix at 4.69 per cent with a £999 fee and a three-year fix at 4.89 per cent which comes with a £499 fee. The Yorkshire building society has a two-year fix at 4.79 per cent for two years with a £595 fee. Although the rate is higher than that offered by Portman, it may work out cheaper for some borrowers as the Yorkshire charges interest daily, rather than annually.

Halifax, meanwhile, has a loan at 4.49 per cent - for purchases only - on loans of up to 60 per cent of the value of the property, so borrowers will need a sizeable deposit. It comes with an arrangement fee of £1,499. The cheapest two-year tracker deal is online only from Direct Line, currently at 4.44 per cent.