Skipton Building Society borrowers face increase of up to £2,000 (From Bradford Telegraph and Argus)

Skipton Building Society borrowers face increase of up to £2,000

1:16pm Friday 22nd January 2010 in

• Skip social links
• Print
• Email
•  

Thousands of borrowers are facing an extra £2,000 a year in interest charges after Skipton Building Society changed its mortgage terms due to “exceptional circumstances” caused by the credit crunch.

Skipton bosses said it was a temporary measure to help it cope with “unprecedented competition and distorted markets” and the mortgage interest ceiling would be reinstated once circumstances permitted.

The Skipton is abandoning a guarantee that its standard variable mortgage interest rate (SVR) would not be more than three per cent above the Bank of England base rate, currently 0.5 per cent.

It is raising its SVR from 3.5 per cent to 4.95 per cent from March 1, which Skipton said was below the average 5.12 per cent of the top ten building societies.

The society is writing to the 29,000 of its 100,000 borrowers who are affected immediately explaining why an “exceptional circumstances” clause, which has featured in mortgage contracts since 2002, has been invoked.

It defined exceptional circumstances as the base rate being below or equal to 2.7 per cent, or the base rate minus the UK average branch instant access savings rate being less than or equal to 2.5 per cent for three months. The base rate has been at a 315-year low of 0.5 per cent since March 2009.

The move will increase monthly payments on a national average £130,000 interest-only mortgage by £157.

David Cutter, chief executive, said: “Throughout 2009 the society operated on an extremely low standard variable rate which helped our borrowers through the recession. At the same time, we tried to protect our savers from the effects of such unprecedented macro economic policy by offering them consistently high returns relative to an extraordinarily low base rate of 0.5 per cent.

“We have approximately 750,000 investing members to our 100,000 borrowers. UK savers have been the forgotten victims of the credit crunch.

“But their money is now in hot demand as banks, in particular those that have been nationalised or part-nationalised, continue to reduce their reliance on the wholesale markets. This, coupled with the rates payable by the Government’s National Savings & Investments, has driven up the cost of retail funding to an unprecedented level relative to mortgage rates.

“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.”