The Bank of England reported that in the last three months of 2017, the difference between the central bank’s benchmark interest rate and the borrower’s average mortgage lending rate “has significantly narrowed.”
A recent report by Threadneedle Street officials said the sharp drop in borrowing costs was around Christmas 2015 before Brexit’s vote because of the continued rapid growth in Britain’s housing market in 2008 and the surge in home demand.
By the end of last year, most of the extra demand came from locking in low interest rates after the benchmark interest rate rose by 0.25% to 0.5% in November.
Mortgage brokers report that fierce competition among lenders means that borrowers barely notice the rise in basic interest rates.
Ray Boulger, a senior analyst at broker John Charcol, said: “We see more competition and lower margins.”
Competitor SPF Private Client Broker Mark Harris said competition between mortgage lenders into 2018 remains strong. In the past few days, some banks and construction associations, including Barclays, Metropolitan Banks and the Newcastle Building Council, have lowered their fixed-rate mortgages. This week, Halifax started targeting potential mortgage lenders with a cash rebate of ￡ 500.
The two-year fixed-rate agreement from the Duchy of Architecture and the Yorkshire Building Society pays 1.2% and 1.24% respectively, while the five-year fixed rate comes from 1.65% and 1.74% respectively, both in the Principality and the MTR.
According to data from financial data provider Moneyfacts, the average fixed-rate interest rate for the new biennium stands at 2.356%. Just a year ago, this figure was 2.349%.
Boulger said lenders, with the help of the government’s turnaround plan, could borrowers to increase their deposits and reduce lenders’ liabilities. He said delinquency and take-back rates were also at historically low levels, allowing lenders to accept lower profits from new loans.
The Bank of England said lenders limit unsecured loans and credit-card borrowings after default rates have soared. The lenders’ expectations of unsecured loans in the next three months show a sharp slowdown in credit.
The central bank said demand for credit card loans remained high, but banks are planning to cut interest-free interest-free periods to reduce the attractiveness of credit-card borrowings.
Much of the growth in unsecured loans came from the new round of leasing to buy a car loan, PCP, which rose sharply with the surge in car sales. Last year, car sales dropped sharply, resulting in a drop in PCP demand.