Fixed rate mortgages still rising

Mon Sep 14 2009 14:27:33

The margins lenders are charging on fixed-rate mortgages has hit a new high as the market continues to suffer from a lack of competition.

The average cost of a five-year fixed-rate mortgage has increased to 6.24 per cent, up from 6.22 per cent at the beginning of September, despite falls in wholesale funding costs, financial information group Moneyfacts said.

The research came as it emerged that Royal Bank of Scotland, in which the Government has a 70 per cent stake, had hiked the cost of some of its fixed-rate deals by up to 0.7 per cent.

Moneyfacts said lenders were continuing to fail to pass on falls in swap rates, upon which fixed-rate mortgages are based.

Five-year swap rates have fallen by 0.7 per cent since the beginning of September, but many lenders have increased the cost of five-year fixed-rate mortgages, leading to the margins charged on the loans increasing by 0.9 per cent to 2.95 per cent, the highest level ever recorded by the group.

The differential on two-year fixed-rate mortgages above two-year swap rates has also risen since the beginning of the month, by 0.6 per cent to 3.27 per cent.

Michelle Slade, spokeswoman for Moneyfacts, said: "Lenders are quick to pass on additional costs when they are rising, but are less keen to put rates back down again when the cost of funding declines."

"The mortgage market is still struggling with a lack of competition amongst lenders which is only serving to keep rates up."

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