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Co-op Bank to raise mortgage rate

image captionA number of banks have announced plans to raise their mortgage costs in recent weeks

The Co-operative Bank will raise its standard variable mortgage rate (SVR) by 0.5 percentage points from 1 May.

The rate, which sets monthly payments for 54,000 mortgage borrowers, will go up from 4.24% to 4.74%.

The average increase in cost for these customers will be £15 per month, or £180 a year.

Some homeowners across the UK have been preparing to pay more after Halifax and Bank of Ireland sparked a round of SVR increases.

Lenders to have announced increases in SVRs in recent weeks include:

  • The Halifax, which will raise its SVR from 3.5% to 3.99% on 1 May
  • The Bank of Ireland's UK arm, which includes Bristol and West, which will put up its SVR from 2.99% to 3.99% in June, then increase it again to 4.49% in September
  • Clydesdale and Yorkshire banks, which will raise their SVR from 4.59% to 4.95% on 1 May

The Co-op said the move was the result of the higher costs it faced to fund mortgages, as well as "changing conditions in the mortgage market".

This included alterations to the funds available to use for mortgages from deposits made by savers.

"We are increasingly seeing a trend for savers to opt for longer term, fixed rate savings products, which typically pay higher rates of interest, and have a knock on effect in terms of the cost of then providing funding for our mortgages," a Co-op spokesman said.

An SVR is arbitrarily set by each individual lender, taking into account the Bank of England base rate, the cost of funding mortgages and the balance between savers and borrowers.

Over the last few years, there has been a "clear trend", according to the Council of Mortgage Lenders (CML), for homeowners to revert to the SVR.

This means that when the term of their fixed-rate deal - which offers a certain monthly bill - comes to an end, they switch to the often cheaper SVR rather than remortgage on to another fixed-rate deal.