Property Buyers are Benefiting from Profit Squeeze on Mortgage Lenders


The Bank of England has reported that the central bank’s base interest rate and average mortgage rates have “narrowed significantly”. The final three months of 2017 demonstrated the biggest strain on profit margins for two years. Because of this and intense competition on the high street, mortgage borrowers are benefiting.

Much of the demand towards the end of 2017 originated from homeowners who were remortgaging. Motivating this trend was the incentive to secure low rates following November’s 0.25% increase in the base rate to 0.5%. Mortgage brokers have reported that because of the fierce competition on the high street, borrowers hardly noticed the increase of the base rate. Heading into the beginning of 2018, rivalry between lenders meant that fixed-rate mortgages were reduced.

Barclays, Metro Bank and Newcastle Building Society were some of the establishments that were altering their fixed rates. Recently, Halifax has gone so far as to offer potential borrowers a £500 cashback. Fixed rate deals lasting two years are available at 1.2% and 1.24% from Principality Building Society and Yorkshire Building Society. In comparison, five-year fixed rates begin at 1.65% and 1.74% from Principality and Metro respectively.

Information from the financial data provider Moneyfacts states that the average, new two-year fixed mortgage rate is 2.356%. In contrast, a year ago the same rate was 2.349%. With help-to-buy schemes, borrowers have been able to increase their deposit and lenders have been able to reduce their liability. Arrears and repossessions are at historically low levels, thus allowing lenders to accept lower margins on new lending.

The Bank of England also outlined that demand for credit card loans stayed at a high level. In response, lenders are working to make credit card borrowing much less attractive by restricting unsecured loans and credit card borrowing.

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