According to figures from the Bank of England, the cost of a tracker mortgage has increased in May as mortgage lenders have yet again increased the margins on their deals.

The Bank of England base interest rate remained steady during May and the Libor, the rate at which banks charge each other for lending, actually fell.  Despite this, the average cost for borrowers with a 25 percent deposit still increased from 3.86 percent to 3.99 percent during May.

Many mortgage advisors have been advising buyers to consider fixed rate mortgages as the only likely move for the BoE base rate is now up.  For those taking out two year fixed rate mortgages, the figures were better showing interest rates decreased on these.

Vicky Redwood, UK Economist at Capital Economics, said: “The latest Bank of England data on the interest rates charged on new lending to households suggest that banks are still failing to pass on any recent drops in their funding costs.  The average quoted interest rate on a new tracker mortgage rose by 13 basis points in May, despite the fact that three month Libor rates have been on a steady downward trend.

“The only consolation was that rates on new fixed rate mortgages remained broadly steady, despite the recent slight pick-up in swap rates.  Nonetheless, even this hardly suggests that banks are falling over themselves to encourage households to borrow from them.”

Since the onset of the credit crunch, it seems that mortgage lenders are making more money on tracker mortgages so when will the level drop?

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