Mortgage lenders deny profiteering claims
Friday, 11 September 2009 11:06 AM
Mortgage lenders have denied they are skimming off pure profit at the expense of the consumer, as interest rates remain frozen while borrowing rates rise.
Yesterday, the Bank of England held its interest rates at 0.5 per cent for the sixth month.
However, mortgage rates have been rising.
Data from Moneyfacts.co.uk show the average two-year fixed rate mortgage is now 5.15 per cent - 0.31 percentage points higher than six months ago.
Average five-year deals come in at 0.58 per cent higher - at 5.59 per cent.
Commentators have now accused lenders of widening their margins.
The Council of Mortgage Lenders (CML) has moved to state the base rate and mortgage rates are not linked - and mortgage rate increases are not a way of generating more profits.
The body claims lenders are facing a whole range of other costs to weigh up - from wholesale rates, savings rates, costs of administering the mortgages, costs of holding capital against the lending, and the risks inherent in the loan.
CML director general Michael Coogan said: "It is utterly misleading to look at any individual benchmark rate - whether Bank rate, Libor, or swap rates - and assume that the margin between that rate and the mortgage rate is pure 'profit' in the way that some recent commentary has implied."
He explained the mortgage market is now in a different era in the way benchmark rates and mortgage rates are linked.
"In addition, not all lenders fund themselves in the same way - but most are relying more on retail savings more than they used to, and the cost of attracting savers is relatively high in an environment where policy rates are so low," he said.
"Many bonds are currently paying well over four per cent, for example."
Mr Coogan claimed lenders wanted to meet consumer demand but they also had to price deals appropriately.
"They are trying to balance these aims, and mortgage choice is successfully beginning to widen. However, this is against the backdrop of funding markets which remain dysfunctional and cautious," he concluded.
However, lenders' margins have been growing, said Ray Boulger at mortgage broker John Charcol.
He explained lower Libor and swap rates had seen "modest cuts" in mortgage rates.
"Despite some lower mortgage rates, lenders' average gross margins have widened further over the last month," he said.
"The rate cuts have primarily been focussed on loans with lower LTVs, with HSBC's new two-year discounted rate to 90 per cent LTV at 3.89 per cent being an honourable exception."
