Halifax increases mortgage rates

New mortgage customers at Halifax will be charged a higher interest rate when their deal comes to an end, it has been revealed.

Customers taking out a mortgage with the UK's largest lender from January 11 next year will revert to a new standard variable rate (SVR), known as the homeowner variable rate (HVR), and will be charged 3.99% interest when their initial deal ends.

Halifax's current SVR only charges 3.5% interest.

Halifax said the new higher rate of interest was necessary because of the rising cost of funding it faces through both the wholesale and retail markets.

Traditionally, borrowers stay on their lenders' SVR only for as long as it takes them to remortgage a new deal. But many homeowners are now sticking with their SVR instead of remortgaging a new deal after the Bank of England cut the base rate to a record low of 0.5%.

Lloyds Banking Group, which includes the Halifax, Lloyds TSB and Cheltenham & Gloucester brands, revealed in August that 45% of all its mortgage customers were on an SVR.

Halifax is not the first mortgage lender to hike its SVR to 3.99% for new customers. The decision to introduce a new reversionary rate follows similar moves by Lloyds TSB, Cheletenham & Gloucester and Nationwide.

Nationwide said earlier this week that between 30% and 40% of its mortgage customers were currently on its old SVR, which it calls the base mortgage rate, of 2.5%, costing it £300 million a year, compared with if it was charging 4%.

At 3.5%, Halifax's current SVR is lower than the majority of the new mortgage deals it offers.

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