Halifax has become the second major lender in as many days to reveal hikes in mortgage costs, confirming it is raising its standard variable rate (SVR).
Some 850,000 borrowers will see their mortgage costs increase as the rate rises from 3.5% to 3.99% from May 1, due to the "significantly higher" costs of funding a mortgage in the current economic climate.
The average balance of the customers affected is £67,500, meaning payments would increase by nearly £16.40 a month to £498.95 on a capital repayment mortgage with 15 years remaining. This equates to nearly £200 extra a year.
Someone with a higher balance of £100,000 would pay £24.30 extra a month, with monthly repayments going up to £739.19, the equivalent of nearly £300 more annually.
The move comes after RBS-Natwest confirmed on Saturday it is pushing up rates on two of its products - the Offset and The One Account - by 0.25%, taking them to a rate of 4%, affecting around 200,000 customers.
The hikes come despite the Bank of England maintaining the base rate at a historic 0.5% low and have been branded "shocking" by the Consumer Action Group.
Halifax said those wanting to transfer to a new product with itself or another lender will not incur an early repayment charge. It is offering fee-free transfers for borrowers wanting to switch deals and said a customer with a 60% loan-to-value (LTV) mortgage could apply for a two-year fixed deal at 3.49% with no fee, for example.
Halifax is writing to customers to explain the changes and said they will be given a clear breakdown of what they mean. The lender said it wanted to "support customers" through the changes and anyone with concerns should get in touch.
This marks the first time Halifax has increased its SVR in nearly five years, the last time being in August 2007 when the rate went from 7.5% to 7.75%. Customers who have taken out a mortgage since January 4 2011 will not be affected by the changes. Those who are affected include some 40,000 borrowers whose SVR deals are on a cap which is set to rise.
Stephen Noakes, mortgage director at Halifax, said: "In light of market conditions, particularly ongoing higher funding costs, it has been necessary for us to review the Halifax standard variable rate. At 3.99%, the rate more accurately reflects the cost of funding a mortgage, but it remains competitive for borrowers."