Although interest rates are at a record low, banks are not passing these savings on to their customers.
Home owners are still paying £1,700 a year more for fixed-rate contractor mortgage deals while the banks are increasing their profit margins.
The difference between the rate banks borrow money and the rate offered to home buyers with a fixed rate mortgage is now 3.29% compared to just 1.28% two years ago. The result is an extra £149 a month for the bank on a £150,000 mortgage which adds up to a huge profit considering that nearly 50% of mortgage holders have a fixed rate deal.
The situation is even more ironic when you consider that during the economic crisis the banks received billions of pounds of taxpayers’ money.
Despite this, more and more people are opting for a fixed rate deal as opposed to a variable rate mortgage as borrowers worry about interest rate rises.
Experts are predicting that there will be no changes in lending for the remainder of the year as people wait to see the effect of the government’s public sector spending cuts. However, there are signs of growing competition amongst lenders as average LTV ratios increase.
Meanwhile, the lack of potential equity release coupled with the high cost of living means that property owners looking to remortgage are struggling and a lot of prospective first time buyers are finding it impossible to take their first step onto the property ladder.
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