by Mark Johnston
New figures show that the gap between the Bank of England base rate and the rates offered by lenders in the UK market is widening. In 2008 to 2009 the difference between the base rate and average mortgage rates were 2.2 per cent whilst in 2009 and 2010 the gap had increased to 3.7 per cent.
The data published by the FSA on mortgage product sales also highlighted that the market is being dominated by just ten lenders. The FSA report showed that 85% of the UK mortgage market was held by just 10 retail banks and building societies.
Matthew Fleming Duffy, the financial director of Abacus, a leading financial services company said that mortgage brokers were generally using less than ten providers for the majority of sales.
Mr Fleming Duffy said: “In terms of intermediary business, it is more like five lenders that are getting most of the business, because there are even fewer best-buy deals that are available through brokers. It is not good for competition.”
He went on to say he “is not concerned that the spread between mortgage rates and the base rate is so high as he says it is crucial for banks to repair their balance sheets”.
But then added: “I hope that this spread starts to narrow when base rate starts increasing or it will price more borrowers out of the mortgage market.”
Flemming-Duffy is concerned by the drop in higher loan-to-value mortgages and loans to credit-impaired borrowers.
Finally he said: “It is right that the number of these mortgages is down on 2007 but for the number to be down on 2009 figures is more concerning as the market was already subdued then.
“The worry is that this will lead to more forced sales as many borrowers will not be able to remortgage.”
The FSA figures also showed that the number of remortgages plunged from 60 per cent in 2008 and the start of 2009 to less than 40 per cent by the end of 2009 and this year.
That said, mortgage transactions were up from 23 per cent in 2008 and 2009 to 36 per cent in 2010. The good news was that first time buyers mortages were increasing but were still not back up to historic levels. The number of loans grew from 13 per cent of the market to 22 per cent, almost a 100% increase.
The number of loan to value mortages below 75 per cent also increased from 69 per cent to 74 per cent over the same period a year ago. Bad news for those with small deposits as the number of loans for mortgages with a 90 per cent loan to value or more fell from 6.5 per cent to 1.8 per cent.
The report also showed that lenders were tightening up on making borrowers prove their income as the number of mortgages that were arranged without proof of income dropped from 51 per cent to 40 per cent. Self employed borrowers tend to not be able to provide their income and take up this type of mortgage, mortgages for self employed borrowers fell from 15 per cent to just 12 per cent.
Lenders showed that they were further tightening their lending policy by reducing the number of mortgages offered to credit impaired borrowers from 1.53 per cent to just 0.43 per cent.
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