SKIPTON Building Society today defended its controversial decision to hike its standard variable mortgage rate as "prudent", despite announcing a rise in annual profits.
The UK’s fourth largest building society posted group pre-tax profits up £41 million to £63.5 million - up £100,000 to £18 million on an underlying basis - in the face of intense pressure from historically low interest rates and competition for savers.
But group chief executive David Cutter said the society was right to increase its standard variable rate (SVR) for 64,000 borrowers from 3.5% to 4.95% from March 1 to "combat the challenges it faces".
The group may have a legal battle on its hands over the SVR move, as it breaks a pledge that its SVR - the rate customers revert to when their existing mortgage comes to an end - will never be more than 3% above Bank of England base rate.
Skipton has said it reserved the right to remove the ceiling in "exceptional circumstances", but a London-based law firm is investigating grounds for legal action.
The society also last month announced 90 redundancies at its Skipton head office and Scarborough office under plans to boost the group’s resilience.
Mr Cutter said the steps were necessary after it suffered a "material reduction" in its net interest margin, which slumped by £33 million to £53 million after the base rate was slashed to an all-time low of 0.5%.
He said: "We have taken prudent action to widen the margin in the long-term best interests of the society.
"In addition, uncertainties remain regarding the economy; the Government’s finances; the impact of an historic quantitative easing programme; and the distortions in the UK savings market - we therefore remain vigilant.
"That is why we announced steps, after the end of the financial year, which will enable the society to combat the challenges it faces."
