Those borrowers holding mortgages with building societies will now be looking at steep increases in mortgage repayments after two further mutual lenders announced that they would increase their standard variable rates (SVRs). First, Norwich and Peterborough, which boasts over 50,000 borrowers, is raising its variable rate to 5.35% from tomorrow, seeing a half point raise. This means that borrowers with interest-only rather than fixed-rate mortgages of £150,000 will be looking at increases in excess of £700 per year in their repayment costs. Also, the smaller lender, Holmesdale, is raising its SVR to 4.89%, seeing a rise of 0.35%. The market has now seen four building societies in total raise rates in a short space of time, with both Skipton and Nationwide raising rates during the course of last week.

Analysts and insiders expect the trend of rising rates to continue, and are advising borrowers to side-step the extra concomitant costs by switching to cheaper deals with alternative lenders, if need be. The rate raises will see those borrowers with lower deposits and equity stakes hit hardest, as they will be unable to switch. Figures released today by the Building Society Association illustrate that mutual societies’ gross mortgage lending fell sharply last year to just £18.6 billion from £37.5 billion in 2008. The figures mask a minimal, short-term spike in gross lending figures seen in December 2008, which stood at1.8 billion, up slightly on November’s figure of 1.6 billion. Analysts believe that this short-term spike was due mainly to the fact that borrowers were looking to obtain deals before the reduction of the stamp duty threshold. Insiders also believe that, total gross lending will most probably remain at low levels until funding and credit conditions improve, particularly for those seeking bad credit mortgages. These fears are underscored by the fact that total gross lending during 2009 was only half that seen in the previous year.

Building societies have been particularly hard-hit in the current low iinterest rate market conditions, as the low rate has seen their profit margins ebbing away. Their mortgage lending has relied upon the deposits of their savers, due to the freezing of wholesale money markets as a result of the global credit crunch. Also, competition among lenders-especially from state-owned banks-has increased the cost of drawing new savers. As many as eleven building societies have now raised their variable rates, and analysts expect more to follow suit soon as market conditions continue to bite. Ultimately, the pain will be unavoidably passed on the customers.