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Lenders enjoying highest recorded margins
The debate over whether lenders are unfairly profiteering from the credit crunch reopened last week, after figures from the indnd (BoE) revealed that mortgage lenders’ margins had reached their highest level since records began.
The BoE’s statistics show that the average two-year fixed rate for new mortgage customers climbed to 4.46% in July, with the average five-year fixed deal rising to 5.7%. The average five-year rate is the highest seen this year, but less severe than a year ago when it nudged over the 6% mark. However, the difference between the mortgage rate charged to the customer and swap-rates – the lender’s margin – is now considerably higher.
Mark Harris, managing director of Savills Private Finance, said margins were so high because of the lack of competition between lenders.
He explained: “The issue is that supply is not there and when demand outstrips supply the price goes up.”
Harris added: “None of the lenders want to stand out and be at the top of the best buy tables for too long. If all the lenders got together to reprice that would help reduce the rates. There is a real ‘safety in numbers’ attitude.”
Jonathan Cornell, head of communications at First Action Finance, said the increase in margins was because many lenders were looking to earn a good spread to repair their balance sheets.
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He explained: “I cannot say I blame the banks because they are accountable to their shareholders. The Government can influence things to an extent but only with the banks it holds an interest in.”