In the past three years countless headlines have been written about mortgage rates falling to record lows – and then those headlines have appeared again, as rates continued to fall, breaking successive records.
With the prospect of the first rate rise by the Bank of England being pushed again and again into the future, lenders have cut rates repeatedly.
And new records are still being set.
This month, for the first time ever, Bank of England figures show the average two-year fixed rate mortgage has now dropped below 2pc (see the blue line in the graph, below).
This truly is a world of low-cost borrowing. But not for everyone.
The dark line on the graph tells another story. This is the rate generally referred to as the “standard variable rate”, charged by lenders to borrowers who have come to an end of their special, introductory, fixed or discounted deals.
According to lenders’ trade body the Council of Mortgage Lenders, approximately half of borrowing is on this “SVR” basis. On conservative reckoning that would tally up to some 5m loans – approaching half of the total mortgages in force.
What is not making headlines is that these rates, as demonstrated in the Bank of England data, are rising.
The average is now charged at around 4.5pc, with some lenders charging 5pc or more.
Some borrowers on SVRs are there because they don’t know better, can’t be bothered to move or simply have mortgages which are small enough for this higher-than-necessary cost not to matter to them.
But a growing proportion of those borrowers paying these high and rising rates are stuck there because – thanks to new mortgage rules introduced by our wrong-headed regulator, the Financial Conduct Authority – they can’t switch.
And here’s the irony. The regulations introduced by the FCA, called the Mortgage Market Review, were supposed to ensure that all lending was “affordable” to the borrower.
But when existing customers paying the SVR (the blue line) apply to their existing lender for one of the new, cheaper rates (the red line) they are being rejected because they fail the new tests.
It seems that reducing these borrowers’ mortgage costs, so that they pay less every month, just “isn’t affordable”.
It seems the affordability rules, so sensible in theory, do little now but protect lenders’ margins.
Source: The Telegraph - Personal Finance - 14/04/2015
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