Today a report was published about the falling cost of money supply to banks which was not being passed on to property buyers seeking mortgages. One of the key figures use to determine the interest rate at which a bank may borrow money in the markets is “3 month Libor (London Interbank Offered Rate), and this rate is now at a low of just 0.99%. Whilst it is the bank base rate that normally catches the headlines it is Libor that has more influence on the cost of borrowing for banks.
So lets take a look at how much margin the banks are making from the homeowner struggling to pay their mortgage. At the time of writing this article the lowest tracker rate available for mortgages was 3.25%, that is 2.26% above Libor, a much higher margin than was being charged pre-credit crunch. And remember, the 3.25% was the lowest tracker rate we found for new mortgages. But on average the tracker rates being offered by lenders is currently around 3.7%, and that is a huge 2.71% margin over Libor.
Overall at a time when the UK economy is in the midst of a severe recession banks need to be compelled to lend at fair and reasonable rates, not to take advantage of market conditions to maximise their profit margins. Lets hope our Government can bring some pressure to bear on lenders, which should not be too difficult with the very large tax-payer stakes held in some of the major high street banks.
