David Prosser: Mortgage lenders enjoy higher margins

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The Independent Online

Outlook Are Britain's mortgage lenders doing quite as badly as many of them would have you believe? With the money markets, post-financial crisis, no longer such an easy source of funding for home loans, they have been forced to turn to savers for the cash required for advances. In a cut-throat market for savings cash, margins are wafer-thin, lenders explain, as they justify mortgage rates that look expensive given that the Bank of England base rate has now been at 0.5 per cent for 18 months.

Just how expensive was revealed yesterday in new data published by Moneyfacts, the personal finance data analyst. Its analysis of the fixed rate mortgage market shows that lenders have never charged more for this type of loan than they do today, at least in the context of where swap rates, on which fixed-rate borrowing is usually priced, currently sit.

The average two-year fixed-rate mortgage, for example, is currently priced at 4.55 per cent, compared to a swap rate in the money markets of 1.26 per cent. That's a margin of 3.29 per cent, an all-time record, up from 1.28 per cent only two years ago.

The implication is that assuming funding models have not changed, mortgage lenders are making more money on fixed-rate loans than ever before. Now, models have changed – as we know, lenders are now funding more advances from savers' deposits than used to be the case. But the money markets are no longer shut completely. Moneyfacts' figures suggest that those lenders able to access them are earning much more handsome margins from their mortgage businesses than you might imagine – or than they have admitted publicly.

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