Banks 'profiteering' on mortgages

BANKS have been accused of profiteering at the expense of borrowers after new figures showed the margins they enjoy on fixed rate mortgages have reached a 20-year high.

The average two-year fixed rate mortgage now costs 4.55 per cent, compared with the 1.28 per cent swap rate, traditionally the barometer of fixed rate pricing, according to new figures from Moneyfacts. The current margin of 3.29 per cent is up from 1.28 per cent two years ago, an increase that translates into an extra monthly repayment of 149 for the average borrower on a 150,000 mortgage.

Michelle Slade of Moneyfacts said: "Borrowers will be angered that they continue to pay the price for mistakes made by lenders, particularly those who have accepted government funding. Mortgage availability and the amount lent continues to improve, but the market still has a way to go before any reasonable normality is returned."

But Melanie Bien, director of mortgage broker Private Finance, pointed out that lenders have responsibility to repair their balance sheets and repay bail out money to taxpayers. "While borrowers will be miffed that banks that needed bailing out are improving their profit margins, it all needs to be put into perspective. Low interest rates have left us with a distorted view of what is 'normal'."

Meanwhile a leading economist has predicted that house prices will continue to fall even as the number of homes going on the market declines. The house price increases of 2009 were driven by an excess of demand over supply, an imbalance that has now swung the opposite way.

But while falling prices could once more deter would-be sellers the withdrawal of buyers from the market will more than offset the fall in the number of sellers, according to Paul Diggle, property economist at Capital Economics. "For now, we are unlikely to see a return to the extreme mismatch between buyers and sellers that drove prices up in 2009," he said.