Millons of mortgage holders are set to face higher bills after Santander announced that it is joining National Westminster Bank and Halifax in raising interest rates on mortgages despite the Bank of England base rate remaining at record lows.
The Spanish-owned bank confirmed that it had raised rates on a number of the mortgage products it sells through intermediaries this weekend.
However, unlike NatWest and Halifax, which are both partly owned by the taxpayer following the financial crisis, Santander’s changes apply to new, rather than existing, products. The increases are also smaller.
Halifax, part of Lloyds Banking Group, is to increase its variable rate on its mortgage products from 3.5pc to 3.99pc, while NatWest, part of Royal Bank of Scotland Group, is raising the rate on 200,000 mortgages by 0.25pc to 4pc.
The move, likely to affect the most financially stretched who will not be accepted by more competitive lenders, is being blamed on the rising cost of funding.
Halifax said that the “cost of raising retail deposits to fund mortgages has risen considerably over the past few years”, despite the Bank rate staying at 0.5pc.
“Throughout 2007, prior to tightening economic conditions, the average savings rate was 1.18pc lower than the Bank of England base rate,” a spokesman said.
“However, since 2008, the average savings rate is 1.27pc higher than the Bank of England base rate. This demonstrates the increased cost that banks must pay to attract retail deposits. Longer term funding costs are particularly high.”