Mortgage margins at 20 year high

Mortgage lenders have been accused of profiteering at the expense of borrowers as fixed-rate mortgage margins reach a high of more than 20 years.

The cost of fixed-rate mortgages has been reducing since the beginning of the year as swap rates - which indicate expectations of future interest rate rises - have fallen.

However, research from Moneyfacts.co.uk, the financial data provider, has found that banks and building societies are only passing on a fraction of the reduced funding cost to borrowers.

The margin on an average two-year fixed-rate deal has risen from 1.28 per cent two years ago to 3.29 per cent 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.

Margins on three and five-year fixed-rate mortgages have also widened further.

Michelle Slade of Moneyfacts.co.uk said lenders were using the extra margins to repair their balance sheets.

“Borrowers will be angered that they continue to pay the price for mistakes made by lenders, particularly those who have accepted government funding,” she said.

Slade warned that the mortgage rates on offer at present are typical of what borrowers expected to pay when bank base rate was higher. “Borrowers could see interest rates as high as 8 per cent if bank base rate rises as quickly as it fell and lenders retain these record high margins.”