It has been a busy few weeks since the monetary policy committee made the decision to increase the base rate for the first time in three-and-a-half years. Judging by the consumer media reaction, you would be forgiven for thinking that we had all forgotten that the base rate can rise as well as fall.
Despite the high-profile nature of the event, the recent increase in the base rate was widely predicted and came as no real surprise to anybody. It has widely been seen as the monetary policy committee clawing back the precautionary cut it made in July.
What was also widely predicted was that lenders would relish the opportunity to increase their standard variable rates. However, amid the crowd of quarter-point increases, there were a few interesting decisions that are worthy of comment.
As I write, there are still a few lenders which are reviewing their standard variable rates but they are mostly smaller building societies. Of the other major players which have announced their decisions, Abbey (the bank formerly known as Abbey National) and Nationwide are worth a particular mention. Abbey chose to spare its borrowers in a small way by not passing on the full 0.25 per cent, deciding to increase its rate by 0.21 per cent, bringing its standard variable rate to 5.75 per cent – and winning some PR Brownie points.
In a reversal of recent history, it is now on a par with Halifax, which did pass on the full quarter-point increase.
Nationwide bravely announced an increase in its standard variable rate of 0.35 per cent, a move that could have left it open to criticism.
But, however tempting it is for the press to cast the former as hero and the latter as villain, it is very misleading if you look at both lenders' decisions and how their borrowers have fared since 2000. Nationwide's standard variable rate is still only 4.89 per cent and, although the recent increase has closed the gap between itself and the other big players, it is still one of the few lenders with a standard variable rate below 5 per cent.
There is another trend developing as a result of base rate movements this year. At the beginning of the year, there was a definite gap between the main lenders, such as Halifax, Abbey, Woolwich, Britannia, Bank of Ireland and Bank of Scotland, and smaller local building societies. As a result of lenders' responses to base rate movements during the course of the year, this gap has been slowly decreasing.
With the obvious exception of those lenders whose rate is below 5 per cent, such as Nationwide, IF and HSBC, standard variable rates in general are now much more staggered than they have been previously. With fewer and fewer customers on the standard rate, as the culture of remortgaging becomes ever more ingrained, it is difficult to assess whether this trend will translate into market share adjustments. It is certainly less likely than in the recent past.
What happens to standard variable rates in 2004 depends on what happens to the base rate. Exactly when the base rate will increase again, and by how much it will increase during the course of next year, is crystal ball territory. However, it is a safe bet that when it does next go up, most lenders will pass on that increase to their borrowers in full.
Ricky Okey is general manager at Charcol