The rate will increase to 3.99 per cent from June 1 and applies to new borrowers. Lloyds also now has the ability to vary the rate at which the SVR tracks base rate movements. However, existing customers will remain on the existing 2.5 per cent capped SVR.
Last week Nationwide revealed that its decision to stick with its pledge to existing borrowers to cap its SVR had cost the building society more than £450m over the past year.
Lloyds Banking Group commercial director of mortgages Stephen Noakes says: “The new rate balances the needs of our customers with the commercial needs of the business. In the light of market conditions, particularly ongoing higher funding costs, we have introduced this new rate for new mortgages only.
“No customers will revert to the new rate until June 2012 at the earliest. The Homeowner Variable Rate is priced very competitively and below the average of other major lenders. It means that we can continue to offer a wide range of competitive and innovative products.”
Simplicity Financial Services principal Rob Downham says: “I do not blame them. What amazes me is that all these lenders had caps in the first place and none of them foresaw that base rate could drop so low.”
Last week Lloyds capped the amount that can be borrowed on an interest-only basis at £500,000 and said it will no longer permit the sale of a main residence, the sale of a business or an inheritance as repayment vehicles on interest-only mortgages.