by Mark Johnston
Following the announcements from leading banks and building societies that they are back in the black many are asking whether they are profiteering from a falling housing market.
Some of the largest high street lenders posted massive profits much of which were as a result of record profit margins on mortgages. Independent analysts claim that the lenders are adding up to £150 a month on the average borrowers bills by having the biggest ever differences between retail mortgage rates and the cost of wholesale borrowing or swap rates.
Michelle Slade from a leading money website said: “margins on a typical two-year fixed deal stood at 1.28 per cent two years ago but has more than doubled to 3.29 per cent today. While the cost of swap rate funding stands at an all time low, the margin taken by lenders has hit an all time high”.
She went on to say: “Mortgage rates are falling, but only a fraction of the reduced funding cost is being passed on as lenders continue 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.”
The council of mortgage lenders defended lenders by pointing out that homebuyers are benefiting from low interest rates. An economist at CML, Paul Samter commented by saying: “It is difficult to see anything other than a slow market for the rest of this year as underlying activity remains subdued. The rest of 2010 is likely to see rather lower lending and transaction numbers compared to the same period last year. Late 2009 saw a pick up as some homebuyers looked to move before the end of the first stamp duty holiday.
“For most homeowners, the situation is not that bleak. The vast majority of households continue to pay their mortgages in full every month, and many have benefited from the record low interest rates. This looks set to continue for some time yet. While there are a range of risks to the outlook, low rates will further help most stay on top of their finances.”
Lenders are still wary of a second recession and are still very careful to who they lend to making if difficult for many to secure borrowing. The Banks and Building Societies have toughened up to avoid the same risks and pitfalls that created the credit cruch and brought the financial industry to its knees.
David Newnes from estate agents Reeds Rains said: “Lending is actually down on last year as lenders remain cautious and keep criteria tight”.
“We don’t believe lenders will relax lending criteria in the short term. We haven’t yet felt the full impact of the government’s spending cuts, which will hit many potential borrowers in the pocket, and may dampen future borrowing.
“So at present, there is still a gulf between the number of people who want a mortgage, and those who can afford the deposits lenders require. Interest rates are attractive, but thousands of first-timers can’t take advantage of this.”
Many believe that house prices will continue to decline until lenders start providing mortgages to first time buyers at higher levels than they currently do. Lenders will probably remain in the less risky end of the market and demand large deposits of up ton 40% until they are more confident on how new regulations will effect them and how the economy with stand up to the aggressive cuts at government level.
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