The Bank of England has hiked its base rate to 4.75%, yet mortgage rates are higher than when the base rate was last at this level. You guessed it: mortgage lenders are craftily cashing in!
Yesterday, the Bank of England raised its base rate by another quarter-point, which takes it to 4.75%. This was the fifth base-rate rise in ten months, which is good news for savers. Then again, it's bad for mortgage borrowers, as every 0.25% hike means paying an extra £250 a year on a £100,000 interest-only mortgage.
What's more, mortgage lenders stand accused of exploiting rate changes to boost their profits. They are slow to cut mortgage rates when the base rate is falling, and sometimes fail to pass on base-rate cuts in full. In addition, they are quick to raise mortgage rates when the base rate rises, and often add a little bit extra for luck! Upmarket mortgage broker Savills Private Finance has exposed this profiteering by proving conclusively that lenders have been tweaking mortgage rates on the sly.
When the base rate was last at 4.75%, in October 2001, the average standard variable rate (SVR) charged by for the UK's fifteen biggest mortgage lenders was 6.28%, a margin of 1.53%. However, the latest quarter-point rise would push this average SVR to 6.55%, a margin of 1.8%.
So, mortgage lenders have helped themselves to an extra 0.27% along the way, which amounts to an extra £22.50 a month on a £100,000 interest-only mortgage.
According to Savills, only two lenders failed to take advantage of base-rate changes in this way: HSBC and Britannia BS. The three worst offenders were Nationwide BS, Portman BS and Yorkshire BS - although, in fairness, their rates were among the most competitive initially. What's more, HSBC and Nationwide BS still have the lowest SVRs among the UK's ten biggest mortgage lenders, so they already get by on lower margins than their rivals.
Mortgage lenders have responded by arguing that regulation costs have risen in recent years, wholesale finance rates are different, and savings rates have also improved dramatically. However, the banks are clearly making loyal existing borrowers pay more in order to lure new customers with the best deals.
Savills has urged the banks to refrain from hiking mortgage rates this time, in order to keep margins at their 2001 levels. However, given the banks' huge appetite for ever-larger profits, there's little chance that they'll take Savills seriously!
So, if you're not happy with being taken for a ride by your mortgage lender, look into remortgaging (switching to a better rate or another lender). Here are a few things to look out for.
More: Check out the rates in our Mortgage centre.
