Santander ditches standard variable rate for new mortgage deals

Published by Adam Williams on 23 January 2018.
Last updated on 23 January 2018

Santander ditches standard variable rate for new mortgage deals

Customers with new Santander mortgages will no longer move to the lender’s standard variable rate (SVR) when their initial mortgage deal ends.

From today (Tuesday 23 January 2018), all new mortgage deals offered by the bank will see the borrower revert to Santander’s new follow-on rate (FoR) once their initial term ends.

The FoR will be set at 3.25% above the Bank of England’s base rate and it will track the base rate’s movements. If a customer were to be on the rate today, for example, they would pay 3.75% as the base rate is currently 0.5%.

This compares with Santander’s current standard variable rate of 4.74%, which is not linked directly to the base rate.

While Santander’s SVR did increase following November’s 0.25% base rate rise, the bank says it will not necessarily do so in future.

Graham Sellar, head of mortgage business development at Santander, told Moneywise that customers had been left confused about whether their mortgage rates were going up or not.

“We haven’t had a base rate for 10 years and we saw last autumn in the period when there was speculation about rate rises that people didn’t fully understand what an SVR was,” he says.

“It might go up with the base rate, it might not.

“Customers prefer the simplicity of a central bank making the decision and the mortgage rate reflecting that.”

‘Customers have the ability to choose’

Those who took out a mortgage before 23 January 2018 will still revert to the SVR when their term finishes, but customers will have the option of transferring to the FoR free of charge.

Mortgages offers made before 23 January, even if they complete after that date, will also continue to revert to the SVR.

However, once a customer transfers to the follow-on rate they will not be able to transfer back to the SVR.

Santander is keen to point out that while the FoR is lower than the SVR based on today’s rates, that may not be the case In future.

“Customers who take out a mortgage next week will start to mature in April 2020,” Mr Sellar says.

“3.75% is lower than 4.74% but it will not necessarily stay that way. The key part is that customers can choose either rate.

“There are no penalties or early redemption charges, so customers can switch at any time. But we would always suggest people seek advice from ourselves or a mortgage broker when their deal expires.”

These terms apply to both Santander customers and those with legacy Abbey National and Alliance & Leicester mortgages.

‘It gives borrowers flexibility’

Chris Lloyd, associate director at mortgage brokers Enness, says this move gives more security to borrowers.

“Having a follow-on rate means borrowers aren’t forced onto expensive SVRs if they don’t fix into a new product on time, which is great for people who are coming to the end of their fixed period and want to sell their property but haven’t yet.

“It enables them to go onto the follow-on rate, and not have to remortgage onto a new product – which might mean paying early redemption charges once they do sell – or accept a hefty SVR. It gives borrowers flexibility and a bit of extra time to make any decisions.”

Mr Lloyd adds: “With the base rate currently low, it gives borrowers more security than they would have with an SVR, which is simply set by the lender, and could increase at any point.”

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In the ten years I have had a

In the ten years I have had a mortgage with Santander they have never agreed to set up a reveiw of our mortgage. Presently we will not be able to repay our mortgage as Santander just do what they want.

I would b interested to hear what statutory rules guide reveiw of mortgages ? what sanctions can banks face for screwing there customers? Quite frankly Santander are criminals .

Let's look at this in a

Let's look at this in a little more detail.

Santander has an uncompetitively high SVR at 0.75% above that of it's peers. This is a big problem for them as they are now required to assess affordability for new borrowers at 3% above their "revert to rate".

But the problem with just lowering their SVR to a more competitive rate is that vast numbers of their customers are paying the current SVR -either through ignorance or are trapped as "mortgage prisoners". £23.3 billion in lending from their own figures which is 15% of their total lending is currently paying the standard variable rate of interest at 4.74%

Which is why they have come up with this new "follow on rate" which is for new customers and is a full 1% lower than the current SVR.

So it seems as though Santander wants to have it's cake and eat it. It wants to attract new customers but it also wants to keep the £233million per year that a 1% reduction in their SVR would equate to.

It also leaves the possibility of raising their SVR even further in the future and not affecting their lending competitiveness.

But is it within the rules? I suspect not but only time will tell when the Ombudsman starts reviewing complaints.

Let's not forget that Halifax and Nationwide tried something very similar in 2002 and ended up paying millions in compensation. But hey! The board of Santander obviously think it's worth a punt!