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Housebuyers benefit from profits squeeze on mortgage lenders

Estate agent window
Borrowers are benefiting from intense competition between mortgage lenders, according to brokers. Photograph: Yui Mok/PA

Mortgage borrowers are benefiting from intense competition on the high street following the biggest squeeze on profit margins for two years.

The Bank of England reported that in the final three months of 2017, the difference between the central bank’s base interest rate and the average mortgage rates charged to borrowers “narrowed significantly”.

The last time Threadneedle Street officials reported a sharp decline in the cost of borrowing was around Christmas 2015, before the Brexit vote, as the UK enjoyed its highest sustained rate of GDP growth since the 2008 crash and demand for homes rocketed.

Most of the extra demand towards the end of last year came from remortgagers keen to lock in low rates following November’s 0.25% rise in the base rate to 0.5%.

Fierce competition among lenders meant borrowers barely noticed the base rate increase, mortgage brokers reported.

Ray Boulger, a senior analyst at the broker John Charcol, said: “We’ve seen competition getting stronger, pushing margins down.”

Mark Harris, at rival broker SPF Private Clients, said that going into 2018 competition between mortgage lenders remained strong. During the last few days, a number of banks and building societies, including Barclays, Metro Bank and Newcastle building society, have reduced their fixed-rate mortgages. This week, Halifax began targeting potential mortgage customers with a £500 cashback offer.

Two-year fixed-rate deals are available priced at 1.2% and 1.24% from Principality building society and Yorkshire building society respectively, while five-year fixed rates start at 1.65% and 1.74% from the likes of the Principality and Metro.

According to the financial data provider Moneyfacts, the average new two-year fixed mortgage rate is 2.356%; exactly a year ago it was 2.349%.

Boulger said lenders were assisted by the government’s help-to-buy scheme, which allowed borrowers to increase their deposit, reducing lenders’ liability. Arrears and repossession rates were also at historically low levels, allowing lenders to accept lower margins on new lending, he said.

The Bank of England said lenders were restricting access to unsecured loans and credit card borrowing following a steep rise in defaults. Expectations among lenders about the availability of unsecured lending over the next three months pointed to a sharp slowdown in credit, it added..

Demand for credit card borrowing remained at high levels, the central bank said, but banks were planning to reduce interest-free periods to make card borrowing less attractive.

MPs and financial regulators have warned over the last year about a bubble in consumer credit, which could undermine the strength of the City and trigger another financial crash.

Much of the growth in unsecured lending has come from a new breed of lease-to-buy car loans, known as PCPs, that have risen strongly in line with a surge in car sales. Last year, car sales declined sharply, leading to a fall in demand for PCPs.

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This article titled "Housebuyers benefit from profits squeeze on mortgage lenders" was written by Phillip Inman and Rupert Jones, for The Guardian on Thursday 11 January 2018 01.40pm

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