By Martin Skinner
Yesterdays Sunday Times money section details a number of margin increases on mortgages by UK banks; mostly the government backed ones. Cheltenham & Gloucester (Lloyds owned) has increased its tracker rate for its 90% LTV product to 5.49% over base – 5.99% at present.
I’m an interest rate ‘dove’ meaning I believe interest rates will remain low for at least a couple of years. This is despite a substantial increase in inflation that’s due around the time the VAT rate returns to 17.5% in January. And despite my belief that a drop in house prices (a ‘double-dip’) is unlikely next year and my expectation that economic growth is likely to surprise on the upside.
5.49% over base for a mortgage though?! That should really come with a public safety warning notice. When base interest rates do finally return to their ‘normal’ position after this crisis has passed of around 5% that would leave borrowers paying 10.49%. More if rates have to be increased further in order to slow the economy again.
With such limited competition out there for lending still borrowers need to take extra care when arranging their loans. With such huge margins the banks will inevitably be declaring big profits soon and competitors will enter the market – in turn improving the offering for borrowers again.
Surely sticking with much lower margin mortgages has to be the way forward for now even if it means putting down larger deposits? Then negotiate bigger mortgages on fixed rates in a few years time when competition returns and future interest rate rises are more likely.
Additionally here’s my roundup of the best of the recent news:
- Elizabeth Colman (The Sunday Times) – Mortgage rates up ahead of ‘double dip’
- David Smith (The Sunday Times) – The nutters can relax but only for a while
- David Smith (The Sunday Times) – Mind the housing supply gap
