Lenders’ margins keep fixed rates high

New figures from the Bank of England show the extent to which banks and building societies have increased fixed rates, despite lower borrowing costs for mortgage lenders, the Guardian reports.

According to the newspaper, fixed rates, which are based on money market swap rates, continue to rise as swap rates fall.

Last month the average rate on a five-year fix with a loan-to-value (LTV) ratio of 75% reached 5.72%, having increased for the fourth consecutive month.

However, swap rates were down to 3.34% at the end of August, for a five-year fix.

Furthermore, the average rate on a two-year fix at 75% LTV remained at 4.42% last month, despite two-year swap rates falling to 1.95% at the end of the month.

The explanation is simple; lenders are not following the downward curve on swap rates because they are choosing instead to increase their margins and ultimately their profitability.

In July of last year, banks typically added 0.5% to their borrowing costs to come up with a mortgage rate.

However, a year later lenders’ margins had increased to 2.61%, on average.

Discuss this in the Finance Markets forums

Story link: Lenders’ margins keep fixed rates high