Housebuyers benefit from profits’ squeeze on mortgage lenders

Borrowers are benefiting from intense competition between mortgage lenders, according to brokers. Photograph: Yui Mok/PA Mo

Estate agent.




Borrowers are benefiting from intense competition between mortgage lenders, according to brokers.
Photograph: Yui Mok/PA

Housebuyers benefit from profits’ squeeze on mortgage lenders

Intense competition between lenders means customers have hardly noticed the 0.25% base rate rise, say brokers.

Mortgage borrowers are benefiting from intense competition on the high street following the biggest squeeze on profit margins for two years.

The Bank of England reported that in the final three months of 2017, the difference between the central bank’s base interest rate and the average mortgage rates charged to borrowers narrowed significantly.

The last time Threadneedle Street officials reported a sharp decline in the cost of borrowing was around Christmas 2015, ahead of the Brexit vote, as the UK enjoyed its highest sustained rate of GDP growth since the 2008 crash and demand for homes rocketed.

Most of the extra demand last year came from re-mortgagers keen to lock in low rates following November’s 0.25% hike in the base rate to 0.5%.

Fierce competition among lenders meant borrowers barely noticed the base rate increase, mortgage brokers reported.

Ray Boulger, a senior analyst at broker John Charcol, said: “We’ve seen competition getting stronger, pushing margins down.”

He said lenders were helped by the government’s help-to-buy scheme, which allowed mortgage borrowers to increase their deposit, reducing lenders’ liability.

Arrears and repossession rates were also at historically low levels, allowing lenders to accept lower margins on new lending, he said.

The Bank of England said lenders were restricting access to unsecured loans and credit card borrowing following a steep rise in defaults.

The central bank said expectations among lenders about the availability of unsecured lending over the next three months pointed to a sharp slowdown in credit.

Demand for credit card borrowing remained at high levels, it said, but banks were planning to reduce interest-free periods to make card borrowing less attractive.

MPs and financial regulators have warned over the last year about a bubble in consumer credit, which could undermine the strength of the City and trigger another financial crash.

Much of the growth in unsecured lending has come from a new breed of lease-to-buy car loans, known as PCPs, that have risen strongly in line with a surge in car sales. Last year, car sales declined sharply, leading to a fall in demand for PCPs.

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