It appears that the long term mortgage cost is looking probable to rise as mortgage brokers advise that mortgage lenders are set on resisting lending too much business now.
As we’ve seen in recent articles in our CeMAP training section, mortgage lenders have failed to drop the interest rates in correspondence to the falling cost of their funding.
When banks lend each other money to fund mortgages, they use the London Interbank Offered Rates (Libor rate) as the base rate to charge each other. The three month Libor is used to fund variable rate mortgages and six months ago it was 2.24 per cent. It is now at less than 1 per cent. Although changes in mortgage interest rates do lag behind, banks are leaving the margins between funding and charging quite wide according to Moneysupermarket.com.
The Council of Mortgage Lenders (CML) has shown lending has risen in the last few months but as banks need to build up capital and attract savers now, they are still reluctant to lower the cost of mortgages so they don’t overstretch themselves. If they drop interest rates too much, they will attract more custom than they can either afford or cope with.
Although interest rates may seem unreasonably high for the current climate, they are in the long run still quite low with fixed rate mortgages over five years still available at less than 5 per cent.