More than 100,000 homeowners will be hit with a huge increase in their mortgage payments after the Bank of Ireland and Bristol & West both raised their standard variable (SVR) rates from 2.99% to 4.49%.
The move follows the example set by Halifax, which increased its SVR from 3.5% to 3.99% several days ago, and the Royal Bank of Scotland and NatWest, which both raised their SVRs by 0.25% to 4% for offset mortgage customers.
The SVR is the interest rate your mortgage will be sat on if your initial fixed or tracker deal has ended and you haven't remortgaged. The rises have come as a shock to borrowers as many believed that lenders wouldn't raise SVRs unless there was a rise in the base rate.
Lenders are saying they have had to raise their SVRs due to a rise in the cost of funding loans. There are two factors affecting this.
Firstly, Libor (the rate at which banks lend to each other) has been steadily rising over the past two years, and up until now the banks hadn't passed this on to borrowers.
Secondly, the Bank of England's special Liquidity Scheme, which provided emergency mortgage funding to banks during the credit crunch, is closing. This means that the banks are having to return to the retail and wholesale markets to fund their mortgage books, and those markets are far more expensive.
For more read Ruth Jackson's blog: Why are mortgage rates rising?
The Bank of Ireland, which owns Bristol & West, has stated that the rate rise will take place in two stages with the SVR rising to 3.99% in June and then in September it will hit 4.49%. The bank also provides home loans to Post Office customers, but they will not be affected by the rise.
A borrower with a £150,000 interest-only mortgage with the Bank of Ireland would see their monthly payments rise from £374 to £561 following the rises. While payments on a 25-year repayment mortgage for the same amount would rise by £125 per month.
If you are affected by the rise in SVRs, or are worried that you soon could be, there are steps you can take to protect yourself. If you are in a position to remortgage then check to see if you could get a lower rate of interest on a fixed or tracker deal.
If you can't remortgage, due to having very little or no equity built up in your home, and are worried you won't be able to meet the new repayments speak to your mortgage provider as soon as any increase in SVR is announced to discuss your situation and what can be done.