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July 27, 2007    

Mortgage lending margins under scrutiny

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by Gill Montia

Fool.co.uk, the personal finance website, believes that UK mortgage lenders have been taking advantage of millions of homeowners over recent years.

According to Fool, Halifax, which is the UK’s largest mortgage lender, has used historically low interest rates to increase margins to very attractive levels. Many other lenders have followed suit.

Figures from the Bank of England and Halifax illustrate that during the housing lull of the mid to late 1990′s, Halifax kept its SVR at much lower levels over the Bank of England’s base rate. As a result, its interest margin over base rate varied from 20% to 23%.

However, between 2000 and 2003 interest rates fell and Halifax increased its SVR to 1.74 to 1.75 percentage points over base rate, thus increasing its interest margin to between 29% and 44%.

In 2003, the Bank of England’s base-rate fell to a 58-year low but from 2004 onwards Halifax maintained its SVR at two percentage points above the base rate, creating an interest margin of between 40% and 53%.

Many other leading lenders have followed the lead created by Halifax and have been benefiting substantially from low interest rates since the year 2000.

Fool is advising those seeking a mortgage to opt for a loan that is not directly linked to a lender’s SVR. Tracker and fixed-rate mortgages are not linked in this way.

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