Halifax has announced it will raise its standard variable rate (SVR) from 3.50% to 3.99% beginning May 1.
The U.K. mortgage lender, which is part of the Lloyds Banking Group, said in a press release that its decision was based on the increased costs it faced in raising the money to lend to customers. "We now need to ensure that our lender’s variable rates reflect these increased costs," the lender stated in the release.
For U.K. RMBS transactions, the immediate effect of the increase in SVRs will be higher prepayment rates, according to a Barclays Capital report.
In the last three years, U.K. borrowers have opted not to remortgage due to lower SVR rates beating out new mortgage lending rates. The increase in SVR rates means borrowers may start to see the benefit in remortgaging to another lender on the high street, particularly one that still offers the lower SVR rates.
Barclays analysts noted that it's likely that the Halifax move will be followed by other lenders, which may prompt borrowers to act sooner in a bid to lock in the still lower SVR rates at competing banks.
"We do not expect the effect to be limited to Halifax or indeed Lloyds deals, but with the press focus on increasing SVR rates, many borrowers may expect their lenders to do likewise and hence look for the security or remortgaging into a fixed rate product," analysts said in the report.
An increase in prepayment rates could have a two-fold effect for the RMBS market. For U.K. master trust structures, that impact is likely to be minimal since these deals are structured and priced with the expectation that the originator will ensure the bonds pay to schedule. The improved sentiment of higher CPR rates, however, could "help investor sentiment, as well as help standalone transactions, like Arran from the Royal Bank of Scotland," according to the report.