by Mark Johnston
A recent report has suggested that mortgage rates in France make UK mortgage lenders look greedy as margins are much higher than in other parts of the world.
A report out in September showed that the average French mortgage rate fell to around 3.3% which is the lowest since the 1940’s. In contrast, the UK’s average mortgage rate is 3.63%. This is a massive difference when comparing the two as the UK’s base rate is just 0.5% whilst the European central banks rate is 1% equalling a 50 base point difference.
A French Independent Mortgage Advisor, John-Luke Busby pointed out that UK banks and building societies are making a lot more than their French cousins. Some industry insiders have suggested that lenders are profiteering but the problem doesn’t stop there.
In France a large proportion (75%) hold fixed rate mortgages for between 15-25 years and those on a variable rate are capped which usually prevents the lender from increasing the rate over 1% above base rate. Here in the UK fixed rate mortgages are only agreed for much shorter periods of time which mean lenders make a lot more money. Although some providers have caps on their variable rates, they are not widely used so they effectively charge what they like.
Mr Busby commented by saying: “These official figures highlight the extent to which UK banks are profiteering on the back of borrowers relative to other countries. Whereas the French mortgage market is structured to reduce borrower exposure and offer fair rates, the UK market reduces security and is built to churn. I am sure UK borrowers would like to have the same peace of mind provided to the French through low rate, long-term loans. In France, you can secure an 80% LTV 25-year fixed rate loan for 3.70%, even as a non-resident, whereas in the UK a rate fixed for just four years comes in at just under 4%.”
A separate news report highlighted greedy banks are charging up to £9,000 for a mortgage. Some lenders are taking advantage of the difficult climate where first time buyers find it difficult to get loans. Some first time buyers with only a 10% deposit are being charged up to over 2.6 percent more than those with a 25% deposit. This can mean an increase of up to £6,000 for a 2 year fixed rate mortgage or £9,000 for a five year loan.
Ray Boulger, a mortgage broker at John Charcol, says: “One of the major legacies of the credit crunch will be the crippling effect it has had on firsttime buyers. Borrowers need a large deposit and a perfect credit history to qualify for a mortgage — and even then they will be paying a premium. Getting on the housing ladder is now impossible for most people without help from their parents or grandparents.”
Sue Anderson, of the Council of Mortgage Lenders, responded by saying: “Clearly, lenders have to price for risk. Lending to borrowers with less equity in their properties is a higher risk and has to be priced accordingly, especially at a time when the future of house prices remains unclear.”
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