Friday, Aug 28, 2009
Its the Arrears, Stupid!
Guardian: Building society borrowers face higher standard variable rates
"Building society borrowers on standard variable rates (SVR) face the prospect of rising mortgage costs after Scottish Building Society became the latest mutual to hit customers with a rate hike. The building society will raise its SVR, which borrowers revert on to at the end of their mortgage deals, by a quarter point to 5.29 per cent on August 29". "In a letter to borrowers, Scottish Building Society said that it was forced to increase interest rates because of the cost of handling an increasing number of customers in arrears".
Posted by alan @ 09:28 AM (614 views) Add Comment
4 Comments
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1. bluebeach said...
a 5.29% SVR is high compared to the Base rate of 0.5%.... but will this stop lenders raising rates when the base rate does rise?....NO WAY.... moprtage rates are on the up and up if base rates stay the same or if base rates rise..... we have better get used to this in the coming years :O)
2. martin said...
"Scottish Building Society said that it was forced to increase interest rates because of the cost of handling an increasing number of customers in arrears".
So those that are not in arrears have to pay for those that are? Yep, sounds about right as usual.
3. mark wadsworth said...
This is of course perfectly rational behaviour (despite the payers having to bail out the non-payers!) and nobody seems to mind that borrowers have to pay an extra "tax" of 2% (or whatever) on the amount of mortgage outstanding, which for recent purchasers and reckless MEW'ers is roughly equal to the value of their property.
How is this, in economic terms, any different to the government announcing a Property Value Tax of 1% (or whatever) on all property values (an admirable way of dampening house price bubbles and the least bad tax, according to extensive research by the OECD) - which would hit people with large mortgages less and spread a bit of the pain to people with low or no mortgages who are in a much better position to pay it (them having much smaller or no mortgage outgoings)?
Just askin', is all...
4. 51ck-6-51x said...
martin said, "So those that are not in arrears have to pay for those that are?"
- Well, yeah. It is well known that an increase in the rate of defaults is correlated with a decrease in recovery rates ( this holds across the credit space ), so the banks expect to recover less from each defaulted mortgage, and since they have the option to increase rates of their SVR they will exercise that option, especially as they know that their competition will too.