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Six months after the Bank of England cut interest rates to the lowest level ever, fixed mortgage rates have increased substantially, leaving bank profit margins at a record high. Research from MoneyFacts shows that most home owners and mortgage borrowers have taken a major hit from banks that are increasing profits margins, despite the announcement of special deals in recent days.
The average 2-year fixed mortgage rate has increased to 5.15 percent in the beginning of September. It stood at 4.84 percent in March. Additionally, a five-year mortgage has increased by an even greater amount and now stands at 6.22 percent from 5.64 percent in March. The swap rates, which banks use to price these fixed interest mortgages, have dropped over the same time period. Over the past month they have fallen from 2.36 percent to 1.14 percent.
The discrepancy between the swap rate and the two-year fixed rate mortgage is now 4.01 percent, and 5.08 percent for five–year fixed rate mortgages. In addition to the high spreads that banks are charging, many have changed the structure of arrangement fees, making them potentially larger for a number of customers.
MoneyExpert has recently highlighted how banks are increasingly relying on a percentage fee, rather than a fixed price. The average percentage fee is 0.89 percent, which is £1,335 for a typical £150,000 loan. That is significantly larger than the average fixed fee of £925. On top of that, by using a percentage, the fee goes up substantially with larger mortgages.
MoneyFacts’ spokesperson Michelle Slade said that “Base rate has been at an all-time low for six months now, but it appears that only providers are feeling any real benefit.”
“Borrowers looking for a new mortgage deal have been hardest hit, as lenders continue to look to repair their balance sheets through increased margins,” she continued.
© Housing Market News by The Little House Company
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