27 Dec 2024

Fixed rate mortgage margins increase again

Mortgage lenders are showing continuing reluctance to reduce the cost of fixed rate mortgages, despite around a 30 basis point reduction in the cost of funding on the swap rates market.

The margin between the average two year fixed mortgage (5.18%) and the two year swap rate (2.04%) stands at 3.14%, the widest margin on record.

During the last month, only a couple of lenders reduced selected rates, including Cheltenham and Gloucester and Nationwide BS. However, other lenders such as Barnsley BS, Chelsea BS and The Post Office all increased rates.

Many lenders have been looking to their savings books to fund their mortgage activity, but in the same period only six accounts saw an increase in rates.

Michelle Slade, spokesperson for Moneyfacts.co.uk, commented:

“Borrowers looking for a new mortgage deal are continuing to pay a heavy price for previous mistakes made by lenders.

“Margins continue to be increased as lenders look to repair dented balance sheets.

“Normal rules where lenders pass or decrease rates based on the cost of funding seem to have well and truly gone out of the window.

“Lenders have always been quicker to pass on increases rather than decreases, but many seem to be reluctant to pass on any decrease in the current climate.

“Savers had been benefiting from the demand by providers to raise money, but this demand seems to have eased.

“The average savings rate stands at 0.84% for variable rate deals and 3.42% for fixed rate deals. Lenders which fund their mortgages through this route are also taking a larger margin than ever before.

“Although tracker rates currently offer much lower rates than fixed rate mortgages, many borrowers are worried about the impact any inevitable increase in base rate will have on their ability to repay their mortgage in future.

“Fixed rates are the preferred option for many borrowers’ and lenders are cashing in on those seeking a new deal.

“It appears that those looking for a new deal are subsidising the revenue lenders are losing from existing customers on low rate SVR or tracker deals, some of which are currently paying less than 1%.”

Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.

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