Homeowners should expect repayments to carry on edging up

THUOSANDS of Scottish homeowners experienced that sinking feeling this week when their mortgage payments became more expensive

For many, it will have been the first increase in more than three years, yet there has been considerable anger at the hikes.Around a million borrowers across the UK were hit by increases in their standard variable rate (SVR) mortgages on 1 May as price rises announced by lenders including the Halifax, Clydesdale Bank and the Co-operative came into force. Around 800,000 people are affected by the Halifax move alone, with their rate going up from 3.5 to 3.99 per cent. For someone with a £200,000 mortgage, that’s an extra £51 a month.

The rate rises mean borrowers face an extra £300 million in mortgage repayments over the next year, according to Which?

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Lenders have come in for plenty of stick following the latest moves, as they did when they failed fully to pass on the 2008 and 2009 interest rate cuts to borrowers.

The main accusation has been of profiteering – and there is more than a grain of truth in this. Any extra margins that lenders are making on mortgage borrowing certainly aren’t being passed on to savers.

The biggest lenders remain conspicuous by their absence from the “best buy” savings tables, which continue to be dominated by supermarkets and building societies.

In defence of lenders, however, the Bank of England base rate doesn’t have much to do with mortgage costs right now. The backlash has partly reflected a mistaken belief that SVRs were linked to the base rate – but mortgage rates may continue going up even if the Bank of England keeps interest rates where they are.

The cost of funding mortgages rose sharply in the early months of this year before dropping off again over the last couple of weeks. That gave lenders the excuse to raise their mortgage rates.

The increased cost of lending hasn’t been so great that banks and building societies couldn’t absorb them, especially those failing to offer savers a decent deal.

However, lenders claim other pressures mean they have to pass higher costs onto borrowers. They cite the cost of meeting regulatory demands, not least requirements to stockpile more capital. Worryingly for borrowers, the capital adequacy requirements forcing lenders to hold more money in reserve will over the coming years become even more onerous, thanks to the Basel set of international banking regulations.

And that’s against a backdrop of a creaking eurozone economy, the UK’s return to recession and rock-bottom consumer confidence. In other words, a housing market that some believed was on the road to recovery is anything but, while mortgage rates, although largely competitive, are now likely to be on an upwards curve.

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Your views as to whether lenders are ripping you off or being reasonable may depend on your general perception of the banking industry. Which is why most people believe the rip-off angle seems most likely.

But it doesn’t change the fact that homeowners can expect repayments to carry on edging up for at least the rest of this year. If you’re on a variable rate deal it might be time to review your options. And if you’re not feeling too good about the economic outlook, you could do worse than looking at the growing band of decent five-year fixed rates on the market and opt for some peace of mind.

Well, at least we now know where our Prime Minister stands in the working past retirement argument. In the latest demonstration of David Cameron’s tendency to belittle opponents arrogantly when he doesn’t get his own way, he this week advised veteran Labour MP Dennis Skinner to think about collecting his pension.

The taste left by the contempt of a multi-millionaire son of privilege telling an 81-year-old ex-miner effectively to know his place was particularly sour.

Cameron’s was the defensive lash-out of someone who knows he’s on the losing side of the argument. But was it also indicative of wider attitudes towards working pensioners?

The number of people actively seeking to work beyond the retirement age continues to rise, Prudential revealed this week. Two weeks ago the Pensions Policy Institute warned that almost half of over-50s may have to work 11 years beyond their pension age if they are to avoid financial hardship in retirement.

That’s easier said than done, however, and not only because the jobless numbers continue to rise. Tackling youth unemployment while ensuring employers keep the door open to older workers is a challenge that has to be tackled over the next few years. Legislation is evolving – witness the abolition last year of the default retirement age – but, as Cameron unwittingly demonstrated, attitudes are taking longer to change.