Lenders’ margins take away the shine for new borrowers
During the past 12 months, lenders have steadily increased their margins on fixed and tracker rate mortgages, according to research by financial website, Moneyfacts.
Over the past year, the Bank of England’s base rate has fallen from 5.5% to 2%.
In addition the cost of borrowing on the money markets has decreased: three month sterling Libor, the rate at which most mortgage lenders fund their businesses, has fallen from around 6% to around 3%.
Two-year swap rates, which are based on the direction traders expect interest rates to take, are also down to below 3%.
Many existing borrowers on SVRs and trackers will already have felt the benefit of the base rate cuts; however, homeowners seeking a new fixed-rate or tracker deal are faced with a hike in the margins that banks charge for this kind of product.
Moneyfacts has revealed that banks and building societies have almost trebled the margins on fixed-rate deals over the past year, from 1.12% above funding costs in December 2007 to 2.92% a year later.
At the same time, Bank of England figures show the average two-year fixed-rate at 6.06% in December 2007, compared to 5.11% at the end of last month.
Meanwhile, the average two-year tracker stood at 6.2% in December 2007, compared to 5.84% on 30th November.
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