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Mortgage margins hit new high for lenders

The margin between mortgage rates and the cost of funding to lenders through the swap rate market stands at an all time high, reports Moneyfacts.

Two years ago the margin on a two year fixed deal stood at 1.28%, compared to 3.29% today.

The increase in margin means that on a £150,000 mortgage, a borrower is repaying £149 per month more, equivalent to an additional £3,576 over the two year term.

Michelle Slade, spokeswoman for Moneyfacts.co.uk, says borrowers will be angry, especially at government backed banks such as the Royal Bank of Scotland and Lloyds banking Group.

She says: “While the cost of swap rate funding stands at an all time low, the margin taken by lenders has hit an all time high.

“Mortgage rates are falling, but only a fraction of the reduced funding cost is being passed on as lenders continue to repair their balance sheets.

She adds that interest rates could hit 8% if the base rate rises and bank’s keep up their high margins.

Slade says: “Swap rates are the traditional barometer of fixed rate mortgages, but with lenders still nervous of entering the money markets many are opting for on balance sheet funding through their savings book.

“While the margin between fixed rate savings and mortgages is lower, it is steadily increasing again.

“The mortgage rates on offer at present are typical of what borrowers expected to pay when bank base rate was higher.”

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  • Dave P 20th August 2010 at 10:30 am

    Wasim, you really must get a life – responding to an article about swap rates at 4.58am!!!

  • Wasim 20th August 2010 at 4:58 am

    Absolutely Pathetic.
    Seriously is this how low Moneyfacts has scooped to?
    Poking and stabbing others to get their own name out in the domain?

    what’s happened to this industry, have we attracted all the scum bags of all industries here.

    Seems like no one can get their point across without tainting other players of the sector.

    Do we really expect joe public to buy this?

    Nice, count me out!

  • GMS 19th August 2010 at 4:40 pm

    Look out for tomorrow’s revelation …….. When you buy something from a supermarket for £1, the supermarket paid less than £1 for it.
    Of course there are profits to be made, it’s called business. What do Moneyfacts suggest? I know, lets make the bailed out banks lend money at no profit. That way the government deficit can stay huge for ever and give them something else to cry about.

    Ridiculous article.

  • Joe Bloggs 19th August 2010 at 2:04 pm

    Silly, silly article.

    Even a basic grasp of economics teaches us that when demand outstrips supply then prices increase. At the moment demand for loans is greater than the ability to supply so margins will increase.

    Those same customers who will be angry about the cost of lending would be equally angry if goverment backed institutions didn’t make enough money to pay back their outstanding government debt.

    Moneyfacts continue to tread a ridiculous path where they want to be seen as a consumer champion whilst continuing to mislead the public.

  • Joe Bloggs 19th August 2010 at 2:04 pm

    Silly, silly article.

    Even a basic grasp of economics teaches us that when demand outstrips supply then prices increase. At the moment demand for loans is greater than the ability to supply so margins will increase.

    Those same customers who will be angry about the cost of lending would be equally angry if goverment backed institutions didn’t make enough money to pay back their outstanding government debt.

    Moneyfacts continue to tread a ridiculous path where they want to be seen as a consumer champion whilst continuing to mislead the public.

  • Adrian Wild 19th August 2010 at 12:55 pm

    The majority of clients won’t even know what a swap rate is, so they will not ‘be angry’ as Ms Slade suggests.
    To put this in to ‘man in the street language’..if the fixed rate is say 3.50%, that is fantastic compared to rates at say 7% ten years ago, as my payments will be much less! Hurrah!!
    On the other hand if I cross the road in front of a bus and it hits me I will die!! A pointless comment for a pointless news article, unless you are a financial analyst.