Santander will become the latest lender to raise its standard variable mortgage rate (SVR), in a massive blow to hundreds of thousands of homeowners.

The lender will raise the its SVR from 4.24% to 4.74% on 3 October. This will lead to a 26 per month or 312 per year rise in payments on a 100,000 repayment mortgage.

While Santander includes the former Alliance & Leicester bank, A&L mortgages are still branded separately and these will NOT be subject to a rate hike. Only Santander-branded home loans are affected.

That said, the A&L SVR is a steep 4.99%.

Santander has also given itself the freedom to raise rates even further in future as it has increased the margin over the Bank of England base rate at which its SVR can go from 3.75% to 4.99%. Again, this doesn't apply to A&L mortgages.

As the base rate currently stands at 0.5%, Santander could raise its SVR to 5.49% in theory. The new cap comes into force on 24 September.

The SVR is the rate most deals revert to after an introductory period.

Other hikes

Like other lenders that have also increased rates, Santander blames rising costs.

Bank of Ireland, Clydesdale/Yorkshire Bank, the Co-op, Halifax and ING Direct have all raised their SVR this year. RBS also raised some variable offset mortgage rates.

However, this latest announcement comes at a time of falling rates for new customers with large deposits.

Rates for a five-year fixes have fallen to their lowest ever level, at 2.95%, for those with a minimum 40% downpayment.

A Santander spokesman says: "This move is prompted by several factors, most notably that for the last three years the amount it costs us to provide mortgages and the rates we offer our savings customers have been increasing despite the base rate remaining static.

"Our competitors have increased their SVRs by similar amounts earlier this year, reflecting the same market dynamics, and while we were able to delay this decision through the first half, conditions now require us to follow them and move to adjust our rate."

What should you do?

The low fixed rate environment coupled with rising SVRs has promoted some experts to urge borrowers to consider a fix, especially those who cannot afford a rate rise in future.

David Hollingworth, from broker London & Country, says: "With some five-year deals now at record lows of less than 3%, some borrowers are bound to be tempted to take the plunge and take any uncertainty out of their mortgage payments not just for today but over the medium term."

Not everyone will save by dumping their SVR, so do the maths first and consider all fees, both to exit your current deal (SVRs should come with no early repayment charges) and any fees to start a new deal.

Only those with a large amount of equity and a spotless credit record will qualify for one of the top rates.

SVRs also offer the flexibility to make overpayments.

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